The Dojima Rice Exchange

If your work involves settlement by difference or clearing in futures, choaimai akinai is a useful example of such mechanisms being used in Japan from early on.

What happened

In 1730 (Kyoho 15), the Edo shogunate officially approved the rice trading that had been taking place in Dojima, Osaka. There were two markets: a spot market that traded rice tickets (shomai akinai), and a futures market that traded representative grades of rice on the books (choaimai akinai). Together they formed a public market known as the Dojima Rice Exchange¹.

Japan Exchange Group describes the Dojima Rice Exchange, which had a membership system and clearing functions, as the origin of Japan's exchanges and as widely known as a forerunner of organized futures exchanges¹.

Domain warehouses and rice tickets

In Edo-period Osaka, domains across Japan kept warehouses (kura-yashiki). They brought in the rice collected as tax and sold it to merchants. Rice from the warehouses was sold by auction to rice brokers, and the winning bidder received a rice ticket. A rice ticket was a certificate that promised exchange for 10 koku of rice. Rice tickets were also bought and sold for rice that had not yet arrived and for future harvests¹.

Rice trading goes back to the Yodoya rice market of the 17th century, which began when merchants gathered at the shop of Yodoya, a leading merchant. Sources differ on when it was established, some giving the early part of the century and others the middle²¹. The market moved to Dojima in 1697 (Genroku 10)³¹.

Rice prices set in Dojima were relayed to Edo and other major cities by messengers and by flag signals, and became the benchmark for rice prices across the country¹.

Shomai akinai and choaimai akinai

The two markets the shogunate approved differed in trading unit and in how trades were completed.

Trading was divided into three terms: spring, summer, and winter. Only licensed rice brokers who were members could take part. There were about 1,300 at first and about 1,000 at the end of the Edo period².

In choaimai akinai, trades were recorded on the books instead of moving rice or money each time, and were settled by the difference. The trading served rice wholesalers and domain warehouses guarding against price swings, and it was also used for trades that bet on price movements².

Timeline

Figure 1 lists the main events, oldest first.

Figure description

The figure runs from the founding of the market through its move to Dojima, the shogunate's approval, the peak of rice-ticket balances, the ban, the revival, and the abolition. Only the shogunate's approval is highlighted as a milestone. The gap between the ban and the revival is short and the others are long, but the figure draws them at similar intervals.

The table below gives the detailed dates and sources.

From the late Edo period to abolition

A lecture by Miyamoto, a professor emeritus at Osaka University, lists the changes that took place from the Tenpo era in the 1830s onward. They were a weaker function of guarding against price swings, a split between shomai akinai and choaimai akinai, trading that came to resemble gambling, and delivery rules that were not well developed².

After the 1869 ban, the Dojima Rice Exchange was revived in 1871 with a trading unit of 10 koku and a delivery term (contract month) of 3 months. It took on a state-run character, for example with its officers appointed by the Osaka prefectural government. Less physical rice arrived in Osaka, so trading in actual rice was slack and settlement by difference became the main mode². The exchange was later reorganized several times, as the Dojima Beiyu Aiba Kaisho, the Osaka Dojima Beisho Kaisho, and the Osaka Dojima Rice Exchange, and was abolished in 1939¹.

Common ground with modern futures trading

A futures contract is an agreement to buy or sell on a set future date at a price decided today⁴. The Pension Fund Association's glossary describes futures as forward contracts that have been standardized so that they can be closed out by an offsetting trade⁵. The modern mechanism is covered in Forwards and Futures.

Settling by the difference is common to both. An offsetting trade ends a position by selling a long position or buying back a short one. A long position gains if the price rises, and a short position gains if it falls. The reverse results in a loss. In the Osaka Exchange's example for Nikkei 225 futures, buying one contract at 15,000 yen and selling it at 15,100 yen gives a profit of 100,000 yen. Selling one contract at 15,000 yen and buying it back at 15,100 yen gives a loss of 100,000 yen (excluding fees)⁶. Modern futures are traded with margin deposited⁴.

What was passed on

Japan Exchange Group explains that many of the trading rules and practices developed in the Dojima rice market were passed on to the commodity, securities, and financial futures exchanges after the Meiji era¹. According to Miyamoto's material, the Osaka Stock Exchange, founded in 1878, adopted the same long-term settlement trading as Dojima's choaimai akinai². The development of modern exchanges is covered in The Development of Futures Exchanges.

What this page does not cover

How large the gains and losses were at Dojima, and whether it had an arrangement equivalent to margin, is not covered on this page.

Notes

1. Japan Exchange Group, "堂島米市場" (Dojima Rice Market; in Japanese), main text and chronology. It states that a rice ticket was for 10 koku, describes the Yodoya rice market (sources differ on the date), and covers the 1730 approval, the 1811 outstanding, and the events of 1869, 1871, and 1939. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰ ↩¹¹ ↩¹² ↩¹³

2. 宮本又郎, "江戸から明治へ、商品・証券・取引所の展開" (From Edo to Meiji: the development of commodities, securities, and exchanges; in Japanese), Financial Services Agency, Meiji 150th anniversary symposium, PDF page 2 (section "堂島米市場" (Dojima rice market) under "Ⅰ 江戸時代" (The Edo period)) and PDF page 3 ("Ⅱ 明治時代" (The Meiji period)). The date of the Yodoya rice market (established by the middle of the 17th century) is from the same source. It is the lecturer's own summary, and the figures follow the source's wording. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰ ↩¹¹ ↩¹² ↩¹³ ↩¹⁴ ↩¹⁵

3. Japan Exchange Group, "当社前史" (Prehistory of the company; in Japanese), the section on the Dojima Rice Exchange as the origin of Japan's exchanges. It describes the Yodoya rice market and the 1697 move. ↩ ↩² ↩³

4. Japan Exchange Group, "先物取引" (Futures trading; glossary; in Japanese). It states that futures are traded with margin deposited. ↩ ↩²

5. Pension Fund Association, "先物取引" (Futures trading; glossary; in Japanese). It describes futures as the type of forward contract standardized so that offsetting trades are possible. ↩

6. Osaka Exchange, "決済方法（先物）" (Settlement methods, futures; in Japanese). It covers settlement by an offsetting trade, settlement at the special quotation (SQ) value on the final settlement date, the Nikkei 225 futures examples (both buying and selling), and a note that government bond futures settle differently. ↩ ↩² ↩³