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Commodities

Tokyo commodity exchange to link up with CME for high-frequency trading

CHICAGO -- A commodity exchange in Tokyo and one in Chicago have agreed to link up via a high-speed network, aiming to lure more overseas investors to the Tokyo market and revitalize futures trading.

     The move will enable American investors to engage in high-frequency trading on the Tokyo Commodity Exchange (Tocom) at a low cost.

     Tocom plans to launch the ultralow latency network in mid-September and link up the CME Group data center in Aurora, Illinois, with one in Tokyo operated by KVH, an information technology infrastructure and communications services company established by U.S. Fidelity Investments.

     In the lead-up to the launch, Tocom will hold meetings in Chicago to attract high-frequency traders, such as proprietary trading houses and brokers, to its commodity exchange. Proprietary traders use their own money to invest in markets instead of clients' capital.

     Tocom lists precious metals, such as gold and platinum, as well as crude oil futures that are also listed on the Chicago Mercantile Exchange. Tocom expects demand for arbitrage trading whereby investors can profit from price differences between the two exchanges.

     Currently, high-frequency trading accounts for 20-30% of the total volume, but "We would like to boost that ratio further from now," said Mitsuhiro Onosato, an executive officer of Tocom.

     CME Group Chairman Emeritus Leo Melamed described the link-up between Tokyo and Chicago as a very good thing for Tocom, adding that the CME will continue a constructive dialogue with the exchange going forward.

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