Hong Kong Stock Exchange

Silence isn't golden for these traders

PUBLISHED : Monday, 16 July, 2012, 12:00am
UPDATED : Monday, 16 July, 2012, 12:00am


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Founded more than 100 years ago, during the Qing dynasty, the Chinese Gold and Silver Exchange Society is still going strong in the 21st century.

It has flourished in recent years as surging gold prices helped turnover soar and spawned new products.

The society's president, Haywood Cheung Tak-hay, who has been trading at the city's oldest exchange for three decades, is upbeat about the bourse's prospects.

'We want the Chinese Gold and Silver Exchange to become the largest of its kind in Asia, and we want the market to set the gold price during Asian trading,' Cheung told the South China Morning Post in an interview.

'The exchange has established a strong platform over the past century, and we want to build on this. We want to extend our international membership, launch new products, modernise our trading hall and, eventually, restructure our company and list it,' he said.

'A key factor in our success over more than 100 years is integrity. Our members all trust each other, and we never default on a deal. We are a successful self-regulating body, and that's why the government doesn't think the gold bourse needs to be regulated by the Securities and Futures Commission.'

A government official echoed Cheung's comments.

'It's true that government doesn't need to worry too much about the Chinese Gold and Silver Exchange Society, which has never been hit by a scandal,' said the official, who declined to be named.

'Sometimes when a member is in trouble, other firms pay to settle the deals first, to make sure trades can carry on.'

Hong Kong Exchanges and Clearing announced last month it planned to spend HK$16.6 billion to purchase the London Metal Exchange, the world's largest. The deal will be put to LME shareholders next week.

'The HKEx proposal to buy the LME will boost Hong Kong's commodities trading,' Cheung said. 'It will complement the local gold bourse, because the LME products differ from ours.'

The gold exchange is mutually owned by its 171 members, of whom about half are jewellers, such as Chow Tai Fook or Chow Sang Sang, or banks, such as HSBC, Hang Seng Bank and Wing Hang Bank. The rest are gold exporters and brokerage firms, such as Sun Hung Kai Financial, which trade for investors.

From 1910, when a small group started trading in Sheung Wan, the exchange has used the same open outcry method, in which traders use hand gestures and call out prices.

The trading floor is open from 9am to 5pm, with a two-hour lunch break. That lunch break is a source of envy to some stockbrokers, whose own lunch break was halved to one hour in March this year.

Computer trading, introduced in 2008, allows them to trade from their offices 19 hours a day.

'We won't abandon open outcry, because that's characteristic of our exchange. Crying out prices or sealing a deal with hand gestures - that's important for commodities trading,' said Cheung, who himself started trading using open outcry.

The exchange would not allow computers to replace traders' jobs, Cheung said.

'However, we can't ignore the fact that more and more investors like to trade gold electronically, so we have also to provide for them,' he said.

'Now turnover during the daytime is mainly driven by open outcry, and electronic trading turnover rises during the evening. I think the two methods can complement each other.'

The exchange allows investors to trade gold in Hong Kong dollars, US dollars and yuan. It has gold products denominated in taels and kilograms, and Cheung hopes to revamp silver trading later this year.

'We want to have more products trading, and we will also modernise our company structure. Eventually, when we can increase profits, we may consider listing on the Hong Kong Stock Exchange,' he said.

Sun Hung Kai Financial, a member of the exchange, supports the idea of a listing.

'When HKEx listed in 2000, all brokerage firms each got more than HK$10 million as a result of their membership,' said Joseph Tong, an executive director of Sun Hung Kai Financial. 'We hope the gold exchange listing will benefit its members in the same way.'

Tong also said the gold exchange's property investments over the years had become valuable assets, which would help the bourse attract investors if it decided to list.

However, Chim Pui Chung, legislator for the financial services sector, including the gold exchange, was doubtful whether listing would be the best option.

'The HKEx has a monopoly on stock trading and has a stable income,' Chim said. 'The gold bourse has no monopoly - any exchange or corner gold shop can trade gold. It would be harder for it to become a listed company.'

Besides the many gold shops that trade gold, a new bourse, the Hong Kong Mercantile Exchange, which started trading in May last year, offers electronic trading in gold and silver futures, though turnover is not high.

Cheung is quietly confident.

'Although the gold exchange does not have a monopoly, there are lots of benefits to trading through our exchange, because of our high level of transparency,' he said.

'We do physical gold delivery, while other exchanges and gold shops offer only futures contracts, which only settle in cash and can't deliver physical gold to investors.'

Cheung said he started his career in stock trading 30 years ago but then found he preferred precious metals.

'For stock investments, I have to pick the right companies, and I have to rely on the companies' management to produce profits. But gold trading is a global market, and I don't need to do any stock picking,' Cheung said.

'When there's a war looming, or the US dollar is not doing well, gold prices go up, and I can earn a good profit. Even when gold prices are down, I can earn interest from my gold position. From an investment point of view, I love gold.'

Bar swapping

Chinese Gold and Silver Exchange Society

Number of members: 171

Turnover: US$2.74 trillion (July 2011-June 2012)

Trading method: Open outcry and electronic trading

Founded: 1910 in Hong Kong

Electronic trading platform launched: 2008

Yuan-denominated gold bar launched: 2011

Silver trading launched: 2012