JPX Says It’s in Talks With Tocom on Trading System

Japan Exchange Group Inc. (8697), the operator of the world's second-biggest stock market, said it's in talks to provide its trading system to Tokyo Commodity Exchange Inc.

Tocom, as the bourse for gold, rubber and soybean contracts is known, is examining options beyond next May when its five-year contract to use the trading platform of Nasdaq OMX Group Inc. comes up for renewal, said spokeswoman Sayaka Sato. It may keep and upgrade the Nasdaq system or shift to a platform provided by a different domestic or overseas exchange, she said.

"JPX is in discussions with Tocom," said Naoya Takahashi, a spokesman for the exchange. "Nothing has been decided at this time." Sharing systems would bring revenue for JPX and reduce Tocom's systems development costs, he said.

About 25.5 million contracts changed hands through Tocom in 2012, down from a recent peak of 87.3 million in 2003, according to the bourse's website. The exchange reported net income of 20 million yen ($201,126) for the year ended March 31, compared with a 205 million yen loss the previous year, as investors increased holdings of risk assets and gold prices reached new highs in February, amid receding risks from Europe's debt crisis and economic-growth concerns in developing countries, the bourse said.

Tocom, CME

Tocom President Tadashi Ezaki said on July 12 the bourse is also in talks with CME Group Inc. about the possibility of sharing trading systems and met with CME Chief Executive Officer Phupinder Gill. CME has tentatively offered the use of its trading systems for around 8.5 billion yen over five years, the Nikkei newspaper reported today without attribution. JPX is asking for as much as 7 billion yen for the same period, Nikkei said.

JPX subsidiary Osaka Securities Exchange Co. uses the J-Gate trading system, also developed by Nasdaq OMX, for derivatives. The Osaka bourse and Tocom agreed in December 2010 that the commodity exchange can use the OSE's J-Gate backup facilities in case of emergencies.

J.C. Penney Gives Up Early Gains; Some Analysts Bullish, Citi Says Sell

Shares of J.C. Penney (JCP) were jumping ahead this morning after a sharp after-hour selloff Wednesday, on concerns that CIT had stopped supporting deliveries to its stores. However, the shares have since given back some ground, and at recent check were up about 1%.

Today, Citigroup's Deborah Weinswig downgraded the stock from Hold to Sell, cutting her target price from $20 to $11. "We do not believe that JCP has made progress in stabilizing the business in 2Q13, and we see no evidence of a turnaround in the works…We are no longer forecasting improvement in SSS trends (on a 2-year basis) for the rest of the year. We have been surprised that quick fixes (like bringing back coupons) have not led to stronger sales, and we don't see anything that will change this in the near-term."

Here are her three main thesis points:

#1: Inability to Connect with the Customer — The problems start with sales. Product on the floor is not resonating with core customers, and it will likely take until 2014 to get the right mix of apparel basics and private label fashion. We also believe that JCP still faces issues with replenishment and in-stock levels. Our quarterly SSS forecasts are (-15)% for 2Q13, (-10)% for 3Q13, and (-5)% for 4Q13.

#2: Gross Margin Recovery Delayed — We think it will take steep markdowns to clear the new home inventory (in fact, JCP ran 40% off furniture purchases of $3,000+ in July). Promotional activity will also need to remain elevated to drive traffic. We now forecast a 27.5% gross margin in 2Q13 and 29.4% for the full year.

#3: Turnaround Unrealistic Without a Turnaround Team — We do not think it is realistic to expect business to improve without a full management team and turnaround plan in place. There have been 10 senior-level management departures since Ron Johnson left in April. JCP is operating with a "Swiss cheese" executive team, and we think the company has had a difficult time finding talent. We are also concerned that the merchandising and marketing teams are not on the same page.

However, other firms have come out in defense at J.C. Penney, including Maxim, Buckingham and Atlantic Equities; the latter upgraded it to Overweight today. Bulls say that no one expected a quick fix at the firm and the selloff is overdone.

Shares of J.C. Penney are down 28% in the past year.