May 15, 2018 / 12:41 AM / in 5 months

Factbox - HKEX plans for metals trading in Shenzhen and LME trading fee reforms

HONG KONG (Reuters) - This time a year ago, Hong Kong Exchanges and Clearing (0388.HK) had just welcomed a new chief executive for its London Metal Exchange (LME) business, was pledging an overhaul of the LME’s fee structure and had launched a new spot metals trading platform in Shenzhen.

The following outlines the steps the HKEX has taken to advance these programs announced in the past year and where the exchange has come up short.

PROMISES DELIVERED - FEE REFORM

LME Chief Executive Matt Chamberlain steered through a package of reforms, including cutting fees on short- and medium-dated trades late last year.

As a result, volumes have revived with total LME turnover rising 3 percent in the first quarter. The LME has said it will likely make these cheaper trading fees permanent.

Still, a new fee for bilateral trades that reference LME prices will start on June 1. Market participants say they are not sure how the LME will enforce payment for these contracts which are not traded on the exchange.

The LME has also agreed to keep its unique daily trading structure out to three months which has alleviated some of the physical user base’s concerns. It had considered building up monthly prompt dates to attract greater uptake by funds.

PROMISES YET TO BE FULFILLED - NEW CONTRACTS

The LME said in September it planned to follow the example of other exchanges and launch a larger number of products, with a focus on cash-settled contracts.

In precious metals, the LME plans to add gold and silver options contracts based on the futures contracts it launched in the middle of last year, as well as platinum and palladium futures. In the ferrous sector it wants to launch hot-rolled coil steel contracts but has not specified when.

Volumes for the gold and silver contracts have eased even as prices have climbed, which may throw up headwinds for linked contracts.

Among cash-settled contracts for new energy materials could be cobalt and also lithium.

ROAD TO SHENZHEN

HKEX said last May it planned to develop a warehousing and logistics network at its Qianhai Mercantile Exchange (QME) in Shenzhen as a spot exchange and that would later support a mainland futures market.

The QME was launched under Guo Xiaoli, formerly general manager at the Zhengzhou and Dalian commodity exchanges. But amid a crackdown on spot commodity exchanges by Beijing, the QME has gone quiet.

The head of the LME’s market development James Proudlock said in July the LME planned a reboot of its electronic warehouse system LMESword after slow uptake. There has been little follow up since Proudlock departed in August.

Reporting by Melanie Burton; Editing by Christian Schmollinger

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