May 9, 2014 7:00 pm JST

Rakuten Securities dives into Japan's sluggish futures market

TAKASHI HAMABE, Nikkei senior staff writer

TOKYO -- Online brokerage Rakuten Securities will make a full-scale entry into the domestic commodity futures market this summer with the acquisition of subsidiary Dot Commodity.

     Rakuten Securities aims to increase the number of domestic commodity futures accounts by 5.6 times to 50,000 using know-how accumulated through trading stock index futures. Market players are watching closely to see whether an online brokerage can reinvigorate the slumping commodity futures market.

     When asked why Rakuten Securities decided to make a full-scale entry into the commodity futures market, Hidekazu Yui, executive officer and general manager of corporate division at Rakuten Securities said: "We are not planning to establish a comprehensive exchange. We decided to make a full-scale entry in anticipation of the future of the commodity futures market."

     Rakuten Securities will acquire a 100% stake in Dot Commodity by July 1. Rakuten group first became involved in commodity futures trading by underwriting Dot Commodity's capital increase in January 2005. Combining Monex's stake, which it purchased in July 2011, and Rakuten's stake, Rakuten Securities now owns roughly 97% of Dot Commodity.

     Rakuten Securities will make Dot Commodity a wholly owned subsidiary by acquiring the 3% stake held by Dot Commodity Chairman Naoaki Kurumada and others and Rakuten's stake. It plans to combine operations smoothly by taking on all of Dot Commodity's 30 employees.

Small market, big dreams

Rakuten Securities' goal is to attract ambitious individual investors and increase the number of domestic commodity futures accounts to more than 50,000 from Dot Commodity's 9,000 in a few years. While 50,000 represents only 3% of Rakuten Securities' 1.6 million consolidated accounts, it is a tremendously large number for the commodity futures market.

     The Japanese commodity futures market has shrunk considerably over the past decade due to tougher controls on business. As of the end of March 2013, the total number of accounts was 79,569, down 33% from a decade ago. Rakuten Securities' goal of 50,000 new accounts equals 60% of the current total.

     Nevertheless, the brokerage appears confident. Some 30-40% of investors who have a consolidated account with Rakuten Securities also use Rakuten's Internet services, allowing them to take advantage of point sharing and other benefits. The company has begun studying how to strengthen its information tools for financial products, as an increase in Internet-available information will naturally raise the interest of investors. The company plans to create a page that simultaneously displays the chart and market information of precious metals closely linked to financial products such as stock index futures.

     "Stock prices are likely to correlate inversely with gold prices, for example. Gold has an advantage when stock prices fall. If investors have more choices in financial products, it will lead to the expansion of service," Yui said.

     As of the end of March, the Tokyo Commodity Exchange's turnover, which shows market liquidity, was 257,000, down slightly more than 70% from a decade ago. Tocom has come up with measures to increase liquidity, such as the promotion of spread between different contract months and products and the expansion of evening trading, but it will take time before these measures take effect.

     Online brokerages are likely Tocom's last hope. At an April 11 press conference, Tocom President Tadashi Ezaki said: "I really hope that Rakuten Securities' entry into the market will boost the number of individual investors and the participation of other online brokerages, too."

     But it is unclear whether more online brokerages will follow suit. SBI Futures, now SBI Securities, withdrew from the market in 2009 due to a lack of decisive factors in increasing liquidity. Even Matsui Securities, which launched overseas commodity futures trading last year, says it is difficult for them to enter the domestic market, as the overseas ones are also sluggish.

    Whether Rakuten Securities can be the savior of the faltering commodity futures market depends on how much the company can increase the number of accounts in July through September, after the business integration.