Publication date: Aug 2, 2024
TOCOM’s Power Futures Trading Volume Jumps Sharply in Q2, Lags EEX
Trading of power futures on the Tokyo Commodity Exchange (TOCOM) has surged, with volumes from April to June 2024 reaching 397GWh, eight times higher than the previous quarter and the second highest quarterly total on record. The exchange’s busiest quarter’s trading was seen during Q2 2022, and was largely down to increased hedging amid significant fluctuations in fuel prices following Russia’s invasion of Ukraine.
Power futures allow firms to lock in prices for future electricity purchases, which power companies then use to hedge against the risk of price fluctuations in the spot electricity market on the Japan Electric Power Exchange (JEPX). The increase in trading volume this year has largely been attributed to the expansion of the ‘market maker system’ – under this system, market makers appointed by exchanges continuously place both buy and sell orders and provide a reference price for transactions. This reference price helps market participants find trading counterparts more easily.
Challenges and Future Prospects for TOCOM
However, 90% of Japan power futures contracts are traded on the European Energy Exchange (EEX), which also saw an increase in trading volumes year-on-year in H124. TOCOM only introduced power futures relatively recently in 2022, and with its lower liquidity it may be difficult to continue increasing trading volume on that platform. EEX launched Japan power futures trading in 2020, reaching 54TWh in May 2024, and participants may be unlikely to switch due to EEX’s more established position and higher levels of liquidity.
Sustaining an upward trend in trading volume poses a challenge for TOCOM, highlighting the importance of ongoing market development efforts.
To further increase volume, the Tokyo-based exchange may need to offer unique value propositions, such as better pricing or innovative products, or specific advantages tailored to the Japanese market that can attract more participants and gradually build liquidity.
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