In 1950, the Commodity Exchange Law was introduced and commodity exchanges were established one after another. The Osaka Grain Exchange, precursor of the Kansai Commodities Exchange, was established in 1952. Aiming to rebuild the Dojima Rice Market from the prewar days, the Osaka Grain Exchange listed cereals after the deregulation of starch and legumes in 1951, and hoped to also list rice someday. During the remarkable changes in the domestic and foreign situation over the next 40 years, the Osaka Grain Exchange functioned to smoothly carry out commodity distribution, by implementing fair price formation and hedging risks for price fluctuation. However, in order to strengthen its managerial base, improve social trust, and activate the Kansai economic bloc within a changing international economic environment, the Osaka Grain Exchange, Osaka Sugar Exchange and Kobe Grain Exchange merged into the Kansai Agricultural Commodities Exchange in October 1993. Furthermore this new Exchange merged with the Kobe Raw Silk Exchange in April 1997, and changed its name to the Kansai Commodities Exchange (KEX). KEX continued to be based in Osaka, the birthplace of Japan's first commodity exchange. Thereafter we endeavored to list new commodities, and listed Corn 75 Index on Japan's first agricultural products and feed index market in 1998. Subsequently, KEX listed NON-GMO soybean in 2000, Coffee Index in 2001 and Frozen Shrimp on Japan's first marine product market in 2002. Finally KEX merged with the Fukuoka Futures Exchange on December 2006, and aims to establish a new rice market listing Koshihikari and Kirara 397 in the new future.
ORGANIZATION AND OPERATION
This Commodity Exchange is a non-profit corporation with a membership system.
Members must be traders working in industries related to the sales, manufacturing, processing, etc., of commodities on the commodity exchange, and must meet the legally defined qualifications requirements. The members include FCMs (Future Commission Merchants) approved by the Minister of Agriculture, Forestry and Fisheries in accordance with the prescribed standards. The FCMs, in addition to conducting their own transactions, may conduct consigned transactions from the general public, that is, they may conduct consignment-based business. Since the commodity exchange has a membership system, its supreme decision-making organization is the General Meeting of the Members. The operation of daily business is conducted by the Board of Directors, which serves as the executive body. The Chairman and Directors are selected by the General Meeting of the Members. The executive body establishes standing committees, special committees, etc., to serve as the consultative bodies for daily business.The members of these committees are selected by the Board of Directors from the directors, the members, and persons of experience or academic standing, and are then assigned and commissioned by the Chairman of the Board. The organization as a whole, including the Secretariat, works to execute orderly and systematic market operations business, to provide guidance, supervision and other types of management to the members, and persons conducting commodities transactions, to develop and promote commodities, and to plan advertisement and enlightenment about these commodities.
PRODUCTS DESCRIPTION
Frozen Shrimp
As the only Fisheries market in Japan, we listed the frozen shrimp (black tiger). Japan imports approximately 250,000 tons of frozen shrimp annually, of which just under 70,000 tons, nearly 30%, are black tiger shrimp. Approximately 90% of black tiger shrimp are caught in Indonesia, India, Thailand and Vietnam, and the two largest consumers of these shrimp are Japan and the U.S.A.
Coffee Index
The coffee index is an index-converted value of the contract price for the arabica and robustas raw coffee beans futures transactions traded on the Tokyo Grain Commodity Exchange. The values for 2000 fiscal year are taken as the standard, and transactions are made at a future index value (the contract index). So that all parties participating in the transactions can participate from an equal standing, a platform is provided for formulating fair and impartial prices, and this platform also offers diverse chances for speculation including opportunities to make decisions about hedges. As with the Corn 75 Index, all settlements for transactions are made in cash using counter sales. The coffee index is receiving considerable attention as a commodity that is more competitive and which is more effective as an investment than futures transactions.
Corn 75 index
The Corn 75 Index is an index-converted value offering a one-package contract price for the two markets for commodity exchange in Japan listing corn, the Chicago Board of Trade, and the soybean oil cake market for the Chicago Board of Trade. The values for 1993 are taken as the standard, and transactions are made at a future index value (the contract index).As such, the actual commodities are not exchanged, rather, settlements for transactions are made in cash using counter sales. Therefore, general investors, spot traders, institutional investors, etc., can participate in transactions from an equal standing.
Corn
Corn is a principal raw material of animal feed which is important in the production of meat, eggs and dairy products. It is also a raw material for processed foods such as cornstarch, cornflakes and isomerized sugar, which are essential for the Japanese diet. Currently the world corn production is approximately 500 million tons, and corn is one of the three major crops in the world along with wheat and rice. U.S. is the world's prominent corn producer, followed by China and Brazil. Japan imports four times as much corn as it does wheat and soybeans, and spends more money on corn than it does on any other farm product. 80% of Japan's corn imports come from U.S. and their value is greater than any other good imported from U.S.
Soyabeans
In the Japanese market, soybeans have long been indispensable to the daily diet of Japanese people, as the raw material for foods such as miso, natto and tofu. The production volume of soybeans for 1994 decreased to be less than 100,000 tons. However, soybeans are so rich in nutrition that they are called the "meat of the field", and are an excellent source of vegetable albumin, so consumption of soybeans as a food product is expected to increase. The annual demand for soybeans for use in soybean oil production is approximately 4 million tons, and for use in food products is approximately 1 million tons, so it would not be exaggerating to say that Japan relies on imports for nearly all of its soybean use. Japan is the largest importer of soybeans and more than 80% of its imports come from the U.S.. Japan also imports soybeans from China and Brazil. Imported soybeans' prices experience large swings according to U.S. weather, prices on the Chicago market and exchange rate. They are on the most actively traded international contracts. The imported soybeans being traded at this exchange are listed as US soybeans and were listed on Tuesday, Jan 16, 2007.
Azuki Bean
The azuki bean has long been an important element of Japanese cuisine, used as a raw material for the red bean paste found in Japanese-style sweets, in sekihan red beans and rice, and in zenzai soup. The azuki bean has also been receiving attention recently as a healthy food. The annual production of azuki beans in Japan is approximately 90,000 tons, more than 80% of which are produced in Hokkaido. Japan consumes more than 100,000 tons annually, importing azuki beans from countries like China to supplement domestic production.
Raw sugar
Raw sugar is the raw material for refined sugar. Known as raw centrifugal cane sugar, this light-brown raw sugar is produced from sugarcane. Sugar is also produced from the sugar beet. Sugarcane is a perennial crop grown primarily in the Southern Hemisphere. The sugarcane is processed into raw sugar in the area where it is grown, and then refined into pure white sugar, granular sugar, and other types of sugars at the point of consumption. The annual Japanese consumption of sugar is approximately 2.4 million tons, with approximately 800,000 tons produced domestically, relying on imports for the remaining 1.6 million tons
Clearing-House
JCCH was established on December 24, 2004, to conduct an independent centralized Clearing-House operation. It is organized as a stock company owned by all Japanese Commodity Exchanges and the Japan Commodity Futures Industry Association which is an association of FCMs. On May 2, 2005, JCCH started providing clearing and settlement services for the transactions of all commodity exchanges in Japan. These services are integral to the efficient operation of all of the commodity markets, as JCCH imposes itself as the counterparty to each trade. This service provides a high level of market integrity as it minimizes the risk of default by either party to each and every transaction.
Key benefits
The operation of JCCH brings 3 key benefits: First, JCCH enhances market integrity. JCCH acts as the counterparty to each transaction, thereby minimizing the risk of counterparty default to all market participants.
Second, JCCH provides for efficient capital management. JCCH is the common Clearing - House for commodity exchanges in Japan. Prior to the establishment of JCCH, FCMs had to provide clearing funds sufficient to satisfy different exchanges, for both the house account and the customer account. This required managing some different accounts for clearing and settlement. Under the JCCH model, each clearing participant maintains one account at JCCH which is netted based on the daily marking - to - market requirements for all positions held at all exchanges.
Third, JCCH allows for the streamlining of back office operations for all clearing participants. As marking - to - market operation and management of margins are integrated through JCCH, there is a reduction in error and a simultaneous corresponding cost savings.
PRODUCTS ADVANTAGES & DISADVANTAGES
Advantages:
- It's a pure play on the underlying commodity.
- Leverage allows for big profits if you are on the right side of the trade.
- Minimum-deposit accounts control full-size contracts you would normally not be able to afford.
- You can go long or short easily.
Disadvantages:
- The futures markets can be very volatile and direct investment in these markets can be very risky, especially so for the inexperienced investors.
- Leverage magnifies both gains and losses.
- A trade can go against you quickly and you could lose your initial deposit and more before you are able to close your position.
Conclusion
The volume of trade of commodities is increased day by day in Kansai Commodity Exchange and the transaction of trading is managed & controlled by the Clearing House "JCCH." with efficiently. There has been a significant expansion in commodities investment in recent years, bringing with it a range of new participants. These developments raise various risks and challenges for those involved. It is essential that all parties fully appreciate and address these risks. Past and continued future growth in the level of commodities investment, a raft of new products, and a changing user base have combined to create a significantly different commodities market environment in recent years, giving rise to a number of challenges and risks for those who participate in these markets. The risks identified in this paper should not come as a surprise to those active in the market, but none-the-less serve to focus attention on those areas we consider to be most important.
