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Hong Kong bourse says mainland commodity platform to support futures trading
May 11, 2017 / 4:33 AM / 7 months ago

Hong Kong bourse says mainland commodity platform to support futures trading

QIANHAI, China (Reuters) - The head of Hong Kong Exchanges and Clearing (HKEx) 0388.HK said the bourse’s upcoming commodity platform in mainland China would support futures trading at other Chinese exchanges.

People from the metals industry and media visit a replica of the London Metal Exchange's open outcry floor at the Hong Kong Exchange's upcoming commodity trading platform in Shenzhen's Qianhai, China May 11, 2017. REUTERS/Melanie Burton

The spot trading platform is expected to be used in metals such as copper and nickel and is the HKEx’s biggest attempt to build a presence on the turf of China’s home-grown futures exchanges in Shanghai, Dalian and Shenzhen. It remains unclear when it will begin operating. (Full Story)

“Our strategy is to (first) develop the physical market. Without laying a solid foundation in the physical market, you cannot build a good futures market,” HKEx Chief Executive Officer Charles Li said on Thursday.

He made the comment on a visit to the site of the upcoming platform in Qianhai, just 50 km (30 miles) from Hong Kong, where HKEx hopes to replicate the success of the London Metal Exchange after buying that bourse around five years ago. The trip to Qianhai was part of the LMEWeek Asia conference.

The aim is to develop a benchmark price in China that, like its London counterpart, is tied to the physical market through delivery, supported by a warehousing and logistics network.

Eventually, as China’s markets open up, the Qianhai platform, called the Qianhai Mercantile Exchange, is intended to connect with the LME and potentially other mainland exchanges, luring customers with opportunities to be active in both the mainland’s domestic markets and international markets.

Some industry insiders have said they are sceptical the new exchange will offer anything they do not already have in a market where investors are turning away from commodities in favour of more tailored investment products.

Hong Kong Exchanges and Clearing Ltd (HKEX) Chief Executive Charles Li looks on before an event celebrating the 16th anniversary of HKEX in Hong Kong, China June 28, 2016. REUTERS/Bobby Yip

Metals traders have also said that Qianhai is not enough of an industrial metals hub to attract sufficient spot metal.

Meanwhile, the China Securities Regulatory Commission (CSRC) warned last year that some regional exchanges were violating the rules on spot trading.

The new platform would wait to launch until after Beijing finished its clean up of the industry, Li said, without giving further details on the time line to launch. “We are not in a rush,” he said.

Li also said the exchange was yet to make a final decision on which commodities it would launch.

The head of the new platform, Xiaoli Guo, said that China’s industry needed to develop derivatives and clearing to help the country’s manufacturers manage their risk.

“The derivative market is not developed fully, so standardised products cannot offer a tailored service for different enterprises, particularly SMEs” he said, referring to small and medium sized enterprises.

It also plans to develop and register a warehousing network in China, just as the LME has in other markets.

“Warehousing capabilities are an important indicator for a good physical market, so we need to have a large network with a lot of warehouses available for the consumers,” said Guo.

Reporting by Melanie Burton; Writing by Joseph Radford; Editing by Tom Hogue

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