Japan Sets up 10gm Previous Metal Unit in Futures Exchange

· Historic Rice Futures Abandoned

Osaka exchange targets individual investors with small 10-gram trading units

An Osaka futures market whose roots go back to 17th-century rice trading is quietly attempting a comeback through small-lot trading of gold, silver and platinum.

"We welcome this day with a determination to start as a new exchange," said Masashi Murata, president and CEO of Osaka Dojima Exchange, said at a news conference on Monday, the first day of trading.

Murata described the day's trades of 712 contracts of gold as a "quiet beginning."

The exchange listed rolling-spot futures. Because they have no settlement dates, investors can hold their positions as long as they want. The setup is similar to that of foreign exchange margin trading, which is popular among individual investors.

Dojima's predecessor began as a rice market in Osaka in the 1600s, moving to the current location later that century and gaining official authorization for rice futures trading from the Tokugawa shogunate in 1730.

The listings are on a trial basis with a three-year limit, with Dojima aiming to increase the scale and make it a permanent market. These are the first new listings on the market since the Niigata Koshihikari EXW rice futures, listed in March 2021.

The exchange's move into precious metal futures is key to its rebuilding. The Dojima Exchange has been in the red for nine straight terms through the fiscal year ended March 2022.

The exchange delisted its mainstay rice futures in August 2021, and trading volume has been virtually zero since. Some market participants say that the listing of precious metals is Dojima's last chance.

In addition to Dojima, Japanese domestic commodity exchanges include the Tokyo Commodity Exchange and the Osaka Exchange, both under the umbrella of Japan Exchange Group.

The OSE offers gold rolling-spot futures, standard futures and mini futures, which are one-tenth the size of standard gold futures.

Dojima is targeting small-lot demand with a trading unit for gold of 10 grams -- one-tenth the size of the OSE mini futures. It hopes to spark individual trading by reducing margins.

Starting trading at a time when gold prices are near their record high could be a tailwind for Dojima. Prices worldwide have skyrocketed amid anxiety about U.S. and European financial systems, particularly after the collapse of multiple banks. Gold futures on the OSE repeatedly hit new all-time highs last week.

At the same time, some question how much this trend will benefit Dojima. A senior executive at an Osaka financial institution expressed doubt over how active the exchange could really become, being late to the game and small in scale compared with the OSE.

In a late-2022 survey by Rakuten Securities of about 2,400 people, when asked to list gold products they have purchased in the past or would like to purchase in the future, only 3% of respondents chose commodity futures or contracts for differences.

"Our goal is to raise our trading volume by weight to about 40% to 50% of other exchanges by the end of fiscal 2023," Murata said.

Participants on the first day of trading included Nissan Securities Group, Comtex, Sunward Trading and SBI Securities, whose parent SBI Holdings is leading the restructuring of Dojima.

"If SBI's established individual investors flow into Dojima's gold market and the price difference between Dojima and the OSE widens, investors aiming for arbitrage could increase trading at both exchanges," said Tsutomu Kosuge, who heads commodity research firm Market edge in Tokyo.