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Business deals

Japan plans consolidation of stock and commodity exchanges

Combined market would allow investors to trade a wide variety of products

TOKYO -- Japan Exchange Group and the Tokyo Commodity Exchange are eyeing an integration that would consolidate securities and commodities futures trading, allowing the combined unit to join the ranks of the world's leading marketplaces.

JPX CEO Akira Kiyota and Tocom President Takamichi Hamada will meet in Osaka on Wednesday and are expected to launch regular talks toward the unification. A combined marketplace would integrate the trading of stocks and commodities futures like energy and grain under one roof.

Trading a wide variety of products on a single exchange would improve convenience for investors and attract more participants to the market, which in turn would improve liquidity and enable more flexible trading.

JPX operates the Tokyo Stock Exchange, where cash stocks and funds are traded, and the Osaka Exchange, where derivatives like stock index futures are traded. The companies will consider several plans for the integration, such as bringing Tocom under JPX or consolidating it with the Osaka Exchange.

Negotiations, however, could face hurdles as both sides consider the leading role in the combination. 

The decision to create an all-in-one bourse was made in 2007 during Prime Minister Shinzo Abe's first administration, and legislation was passed in September 2012 to clear the way for a linkage. But a deal never emerged, given wariness from Tocom and from the bodies that oversee it -- the Ministry of Economy, Trade and Industry and the Ministry of Agriculture, Forestry and Fisheries.

The government is now more ready to push the idea, however. A council on regulatory reform, headed by National Graduate Institute for Policy Studies Professor Hiroko Ota, included the idea as a centerpiece of its deregulation plan this month. Also, Toshihide Endo, who has long argued for an all-in-one market, was named top career official at the Financial Services Agency earlier this year.

Exchanges around the world are positioning commodities like energy and metals as growth businesses. But the Osaka Exchange, which ranks 16th worldwide in derivative trading, cannot handle these products. "The inability to offer commodities trading is an issue for our international competitiveness," said President and CEO Hiromi Yamaji. 

Operators like Intercontinental Exchange, which owns the New York Stock Exchange, typically handle commodities and securities together. Hong Kong Exchanges and Clearing bought the London Metal Exchange in 2012, for example.

Japan Exchange Group was formed when the TSE combined with the Osaka Securities Exchange, now known as the Osaka Exchange, in January 2013.

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