Hong Kong Exchanges and Clearing is planning to develop an industrial user base to back its metals trading hub in China as part of a drive to expand its commodity business in the world’s second largest economy.
This is an opportunity for HKEx to leverage its LME brand.
A new free trade zone near Hong Kong, known as Qianhai, is set to host the platform for trading metals before extending into other commodities, pending regulatory approval, according to HKEx spokesman Scott Sapp.
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Sapp commented: “Our goal is to leverage our experience in launching new initiatives with the mainland and the LME’s (London Metal Exchange) successful model to ‘physicalize’ the mainland’s commodities market.”
HKEx bought the LME for $2.2 billion at the height of the commodities boom in 2012, and a mainland presence would be welcomed after a year-long struggle by the London bourse to break into China. HKEx Chief Executive Charles Li has previously said that plans by HKEx to create mainland, physically deliverable spot commodity markets are a way of getting the LME’s warehousing expertise into China.
By the end of 2015, annual spot commodities trading volume had reached $4.5 trillion on more than 350 independent exchanges in China, according to data from Euromonitor. Trading volume grew 35 percent annually from 2011 to 2015.
However, regional commodities exchanges have no central regulator and many investors have walked away with their fingers burnt, leaving an opportunity for HKEx to leverage its LME brand.