The TOCOM Index as a benchmark of the whole market
The TOCOM Index is based on the price of all the listed commodities at TOCOM for each market division (precious metals, aluminum, oil and rubber) and therefore gives an overall indication of the price levels on the TOCOM market as a whole.
The TOCOM Index is a highly transparent index
We believe that transparency is the most important factor for an index published by a public institution. Therefore, the published values and method used to calculate the TOCOM Index are readily available so that whoever calculates the index will reach the same result.
The TOCOM Index as a tool to hedge risk
Since the TOCOM Index gives an overall indication of the price levels on the TOCOM market as a whole, it is a reliable indicator for commercial players to form their comprehensive hedging strategies. Also, because of the high correlation between commodity futures prices and price indices (e.g: Consumer Price Index, etc…), the TOCOM Index could also serve as a tool to hedge against inflation, and as such, it will contribute to enhance the functionality of commodity futures markets as one of the industry’s infrastructure, that is to provide a risk hedge tool for price fluctuation.
The TOCOM Index as a tool for asset management
In the past couple of years, as the commodity market has developed and commodity prices increased, and since commodity markets move distinctly from stock and bond markets, investors have been turning their eyes on commodity markets to diversify their investment. As a result, some investment trusts and commodity funds have developed commodity indices, or use such indices, based on the price of TOCOM’s listed commodities.
The TOCOM Index, while acting as a benchmark to assess the individual performance of such investment trusts and commodity funds, also takes into consideration the composition of the market and its liquidity, and therefore allows for the said trusts and funds to base their operations on the index.
Calculation Method (outline)
Calculation Method of the TOCOM Index
The TOCOM Index is…
composed of all the TOCOM listed commodities
and has a weight percentage for each component based on the relative size of the cash and futures market,
which is multiplied by the fluctuation rate of each component’s settlement price in the core contract-month (fifth or sixth contract-month), from base date (May 31, 2002) to the applicable date,
and is the aggregated figure of all the components.
Weight Percentage
The scale of the cash market, one of the factors that determine the weight percentage, is calculated from the previous year’s import volume (domestic sales volume for gasoline and kerosene). Another factor, the scale of the futures market is based on the average of the previous year’s end of month open interest on the TOCOM markets.
The weight percentage shall be reviewed once a year, for an application starting on the first business day of June.
