Japan OTC Exchange Goes Live with First Liquefied Natural Gas Instrument

The latest trading venue to gain government approval in Japan has launched its benchmark contract. The Japan OTC Exchange went live with the world’s first Liquefied Natural Gas (LNG) financial trading contract on the 12th of September. The move comes on the back of increasing costs and usage of LNG as Japan recovers from the 2011 Fukushima incident.

Liquefied Natural Gas, a sub-set of Natural Gas gets its first financial listing on a derivatives exchange. The new contract which was granted approval under the Ministry of Economy, Trade and Industry of Japan on the eleventh of September was listed the following day on the Japan OTC Exchange.

Japan’s latest venue, a joint venture between the country's largest commodity bourse, TOCOM, and a Singapore energy trading firm went live in November 2013. After ten months of consultation with regulators the firm received permission to launch the inaugural NDF contract.

The new contract is available on the bourse’s electronic Trading Platform ; it is screen-based and is a cash-settled transaction. Traders will be able to select tradable counterparties from the trading members in advance, based on each member’s credit condition. Orders can be matched only among the tradable members. The transactions are bilaterally settled between the parties.

The exchange calculates the profit and loss of each trading participant, and notifies the parties prior to the settlement process.

Natural Gas (NG) has been battling against rival, Crude Oil, since its 2008 price spike. NG usage has been increasing and is becoming an alternative in various sectors across the globe, but energy dependent nations still rely heavily on the consumption of crude oil.

TOCOM, one of the founding members of the Japan OTC Exchange, lists a number of energy derivatives contracts. Traders can gain access to Crude Oil futures, Gas and Kerosene. The Crude Oil contract has been available to Japanese traders since 2001, and is one of the most liquid in the Asia-Pacific time zone.

Global financial markets have been mesmerized by the recent crisis impacting two energy-crucial regions, Russia and the Middle East. The price of oil hit a nine-month low in August as markets factored in the difficulties of a prolonged international conflict. Furthermore, the positioning of Iraq with ISIS has triggered concerns with Opec meeting global demand.

“Markets are facing another backlash of undue activity, although the conflicts have been priced-in, energy traders are showing signs that oil is nearing a major drop below the all important $90 mark, a psychological level," said Farhan Ahmad, a London-based trader, in a note to Forex Magnates.