LONDON (Reuters) - Hong Kong Exchanges and Clearing (0388.HK) (HKEx) moved a step closer to offering renminbi clearing of metals contracts on Monday, signing an agreement with the London Metal Exchange (LME) and Bank of China (601988.SS) on how it will work.
The move gives Chinese investors improved access to the LME, the world’s No. 1 metals marketplace, by allowing them to use local currency when trading LME contracts.
The agreement also covers how HKEx might develop renminbi-denominated commodity products to accommodate Chinese customers, the world’s top consumers and importers of base metals.
LME contracts are denominated in dollars, though the exchange has for years been offering clearing in currencies such as sterling and the euro, to accommodate European investors.
The move toward renminbi clearing was on the cards even before HKEx bought the LME late last year for $2.2 billion.
Although LME contracts are currently cleared through LCH.Clearnet, Europe’s No. 1 independent clearing house, the exchange plans to offer in-house clearing through LME Clear by September next year.
“The MOU (memorandum of understanding) entered into today marks the beginning of our collaboration to examine the feasibility of LME contracts to be cleared in RMB and potential development of RMB-denominated commodity products in the HKEx group platforms,” said HKEx chief executive Charles Li.
A clearing house acts as an intermediary between parties to a trade, in order to reduce the risk of one or more them defaulting.
Reporting by Maytaal Angel; Editing by Louise Ireland