TOCOM Energy
TOCOM lays the groundwork for a revitalized Power Futures Market in 2025
TOCOM
Tokyo Commodity Exchange (TOCOM), an energy-focusing exchange within the Japan Exchange Group, took significant action to accelerate development of its power futures market in 2024. The movement was also backed by strong support from the government.
In April 2024, the Ministry of Economy, Trade and Industry’s (METI) “Working Group on Stimulation of Japan’s Power Futures” highlighted two key issues: the growing demand for power futures products to assist electric utilities in managing risk and the need to advance promotion of commodity exchanges under Japan’s Commodity Derivatives Transaction Act as issues in need of address. In response to investor needs, TOCOM enacted several measures to revitalize the power futures market.
Spurred by the government’s directive and TOCOM’s multiple market growth measures, on November 7, 2024, TOCOM power futures reached their highest daily trading volume of 153.72 GWh since their initial listing in September 2019. In February 2025, TOCOM saw continued active futures trading, even during what is typically a quiet season for power companies. TOCOM’s power futures market is poised for further growth in 2025.
As TOCOM is an exchange under Japan’s Commodity Derivatives Transaction Act, its power futures market offers specific strengths:
- TOCOM has built five years of stable market activity in power futures, offering both on-screen and off-screen (or block) trading. See the on-screen quote status from here.
- As a domestic exchange, TOCOM has built a strong collaborative relationship with Japan’s power spot market, Japan Electric Power Exchange (JEPX), which is also experiencing rapid growth within the industry.
- TOCOM offers power futures contracts that simplify market entry for Japanese power companies, including yen-denominated trading and clearing, and smaller trading sizes.
Below is a summary of key topics of Japan’s power futures market from 2024 and projects for 2025, including changes in the market and TOCOM’s initiatives that resulted in November’s record daily trading volume.
SUMMARY OF PROGRESS IN 2024
1) Participation by New Big Players’
Mitsubishi UFJ Bank’s (MUFG Bank) entry as a clearing broker for TOCOM in September 2024 was one of the most impacted events in 2024 and is poised to be a game changer for the market.
As METI’s Working Group report noted, “clearing participation by financially reliable financial institutions” is key to further expanding liquidity in the power futures market.
The entry of one of Japan’s largest banks into TOCOM’s power futures market has introduced new broker options and fostered healthy competition, making trading more accessible for a diverse range of market participants. This includes large utility companies wishing to trade relatively large lots, overseas energy traders, and newer small to medium-sized domestic power producers and suppliers (PPSs) that need to hedge based on their actual business demand.
Further, in October 2024, EDF Trading Japan, the Japanese subsidiary of a global leading wholesale energy company, acquired TOCOM’s trading membership, further enhancing the depth of market participants.
These developments are expected to create positive synergies, driving an increase in both the number of market participants and the liquidity of power futures trading. TOCOM continues its work to expand and diversify market participants, which has long been one of its goals.
2) Launch of the Linked Spot-Futures Platform
On October 28, 2024, JEPX, the power spot market, and TOCOM jointly launched the “JJ-Link” platform, a linked service that links spot and futures contracts for electric power. This initiative enables domestic power companies to use futures trading for their hedging while complying with Japanese accounting standard.
Electricity is a unique non-storable product, unlike other asset classes, and its prices can sometimes experience sharp spikes due to imbalance between supply and demand. This feature creates strong demand for futures trading as a hedge against fluctuating electricity spot prices, particularly among major Japanese utilities and PPSs that operate power generation plants. However, applying hedge accounting to power futures trading under Japan’s accounting standard still present significant challenges on various fronts.
The JJ-Link platform helps address this challenge by certificating the futures transactions as a hedge against future scheduled spot trading, allowing the application of hedge accounting. As a result, electric power companies that were previously reluctant to engage in futures trading due to hedge accounting concerns are now more likely to enter the futures market.
The second phase of the JJ-Link platform, expected to launch in 2025 for later, aims to offer a seamless one-stop service that automatically places orders in the JEPX spot market integrated with with the TOCOM platform. This innovative service will greatly enhance the convenience of trading in both power futures and spot transactions for domestic companies.
The scheme has garnered significant attention from market participants. In September 2024, TOCOM and JEPX jointly held a seminar on the JJ-Link platform, attracting strong interest and engagement, with over 400 attendees in person and online. In the panel discussion, panelists from electric power companies expressed their expectations for the JJ-Link. TOCOM believes the service will be crucial to differentiating its power futures market and driving growth in trading.
3) Improved Market Liquidity in On-Screen and Off-Screen Trading
The TOCOM power futures market employs “market-maker programs” to secure stable on-screen quotes, promoting smooth and efficient trading. Like other futures products, market makers continuously provide on-screen buy and sell quotes for designated contract months with required bid-ask spreads, order amount, and quoting hours.
In April 2024, TOCOM upgraded its market-maker programs, tightening spread and order size requirements, further simplifying trading for participants. That same month, TOCOM recorded its highest on-screen monthly trading volume, 2,346 lots or 157.81 GWh.
In addition to on-screen liquidity, the off-screen (block) transaction have gained momentum since MUFG Bank joined the market. With local utilities and PPSs seeking larger trade sized, the role of inter-dealer brokers in matching counterparties for block-sized transactions has become increasingly crucial.
OUTLOOK FOR 2025
1) Improved Market Environment and More Market Participants
In cooperation with market players and related stakeholders, the TOCOM power futures market experienced significant improvement in 2024. These developments are set to continue into 2025, driving more active trading, including anticipated block-sized transactions by larger players, and further strengthening the market’s overall ecosystem. As a result, the market is expected to attract even more new membership, carry brokers, and participants in 2025.
2) Fiscal Year Contracts in May 2025
To address the longer-term hedging needs of domestic power companies, TOCOM will launch fiscal year contracts in May 2025, which will complement the existing listed monthly and weekly contracts. The range of products available for trading on the TOCOM power futures market will expand from the current 8 to 12.
The fiscal year contract has been aligned with Japanese power trading practices, with a target period of “April 1st to March 31st of the following year” and a tradable period of “two years in the following fiscal year and the following fiscal year after that”. TOCOM aims to expand trading opportunities and enhance convenience by introducing a new product tailored to the needs of electric power companies.
3) Other Initiatives
TOCOM continues to look for new ways to improve its trading system and enhance market convenience. As part of these efforts, the exchange is addressing challenges to the application of hedge accounting by domestic electric power companies. In February 2025, METI and TOCOM published a report outlining discussions and findings from its dedicated study group on this issue.
TOCOM remains committed to engaging with market participants and pursuing the continued revitalization of the power futures market. We encourage you to stay closely informed about ongoing developments in this market.
Related links
Joint Provision of Linked Service for Spot and Futures Trading Related to Electricity
