The Tokyo Commodity Exchange, Inc. (TOCOM) has announced today Precious Metals Market rule changes for Declared Delivery and Customized Delivery. The new rules allow settlement through the delivery of bars instead of warehouse receipts where there is consent between buyer and seller. The updated rules took effect on August 1 and are applicable to the August 2017 contracts onward.
TOCOM had stipulated, as a general rule, that Precious Metals Market futures were settled by delivery of warehouse receipt from a TOCOM’s approved warehouse for bullion the manufacturer refined and held in their storage themselves. This rule controls and maintains the quality of deliverable goods in an open marketplace where anonymous participants can trade and conveniently distribute bullion. Recently, an increasing number of market participants, particularly those from abroad, requested that the Exchange permit settlement by the delivery of precious metal bars. In response, TOCOM adjusted the rules for Declared Delivery and Customized Delivery.
The adjustment defines the requirements for counterparties who wish to deliver through mutual consent. The updated rules substantially ease restrictions imposed on the precious metals’ commercial participants and the financial institutions, which do not have warehouse receipt issuance qualifications, when they wish to deliver bullion on the TOCOM market. For example, a local precious metals processor may use gold bars purchased from an international vendor for delivery without having to have a warehouse receipt issued. Other participants may use bars purchased from an overseas financial institution for delivery by transferring ownership at a warehouse.
In conjunction with these rule changes, TOCOM accepted Brink’s Japan Limited as a newly approved warehouse operator, which will increase delivery options. Brink’s Japan is a subsidiary of Brink’s Incorporated, a U.S.-based company providing security services including global transportation and storage for high-value goods. They operate globally and are experienced in custom-house businesses. Their services are expected to contribute to improving TOCOM’s market convenience for the wider trading community.
To develop a comprehensive commodity market, TOCOM is working to meet the various needs of a diverse set of market participants. This includes not only futures but physical transactions. TOCOM continues to make efforts improve usability and liquidity of the market.
Outlook of the Updated Rules for Declared Delivery and Customized Delivery
| Items | Declared Delivery | Customized Delivery |
| Products | Gold, Silver, Platinum, Palladium | |
| Eligible Users | Commercials, TOCOM Members and others as determined by the Exchange | |
| Decisions for Delivery Parties | Mutual consent between buyer and seller | |
| Period of Application | From the first business day of the month prior to the month containing the delivery day until two business days prior to the delivery day | Until the next business day following the last trading day of a contract month |
| Procedure of Application | The necessary documents prescribed by the Exchange, such as the application form, signed by buyer and seller |
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| Good Delivery Material | Bars with the following purity, based on the agreement between buyer and seller: Gold of minimum of 99.5％fineness Silver of minimum of 99.9％fineness Platinum of minimum of 99.95％ fineness Palladium of minimum of 99.95％ fineness ・No specific shape required ・Not limited to TOCOM’s designated brands ・Not limited to bars of single brand ・Not limited to virgin metal |
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| Delivery Points | Existing TOCOM approved warehouses and Brink’s Japan warehouse, based on mutual consent |
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| Method of Delivery | Upon mutual consent between buyer and seller (e.g. transfer of ownership or issuance of delivery order) |
|
| Delivery Day | Between the second business day following the execution of transaction and the last business day of an even month |
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| Delivery Price | Settlement price for the day the transaction was executed | Delivery price of the current contract month |
| Claim for Malfunction | Not accepted | |