Electronic trading to bring gold exchange into modern era

PUBLISHED : Monday, 17 March, 2008, 12:00am
UPDATED : Monday, 17 March, 2008, 12:00am

The electronic trading system that will be installed soon at the local gold exchange has attracted 14 newcomers to the market since the beginning of last year, Chinese Gold & Silver Exchange Society data shows.

Three new members joined the exchange this year. Three other buyers said on its website they wanted to buy memberships but had not yet found sellers.

Last year, the exchange drew 11 new members, in contrast with previous years when few joined as gold prices were low, traders said.

The exchange has 171 memberships and has no plans to issue new trading rights, so newcomers have to buy memberships from incumbents. The price for such membership rose recently to about HK$2 million, from HK$200,000 some years ago.

OSK Asia, the Hong Kong unit of the Malaysian brokerage group OSK Holdings, is the newest member of the gold exchange.

Stephen Hui Chiu-chung, chief executive of OSK Asia, said the company wanted to diversify its business by offering clients gold trading services in addition to stocks, futures and corporate finance.

'With gold rising above US$1,000 per ounce last week, investors have increased their interest in gold trading,' Mr Hui said. 'Gold investment, like stocks or futures, is one wealth management product for clients.

'The Chinese Gold & Silver Exchange Society is going to launch the electronic trading system to allow members to trade local London gold, which is popular among many retail investors. Our firm believes there would be opportunities in such types of business, so we joined the exchange.'

He believes not only Hong Kong investors but those from the mainland or overseas markets as well would also like to use the city's gold exchange to trade gold after the electronic trading system is launched.

'Electronic trading will add transparency and convenience to gold trading in Hong Kong,' he said.

Since its establishment in 1910, the gold exchange has allowed members - who are mainly jewellery makers and investment firms - to use the open outcry method, whereby they cry out the price and use hand gestures to trade gold on the floor in tael (one tael equals 1.2 ounce).

This has made it hard to expand the business in a computer age. The stock exchange and the futures exchange have both moved electronic trading in the 1980s and 1990s respectively.

Gold exchange president William Lee Tak-lun last year announced the exchange's intention to catch the trend by introducing electronic trading to allow the use of computers to trade local London gold, whose price was fixed in London. Tael gold will still be traded on the floor after the electronic platform is introduced.

International Financial Networks, another local stockbroker, became a member of the gold exchange late last year. Its chief executive Kenny Lee Yiu-sun, who is chairman of the Hong Kong Stockbrokers Association, said the electronic trading system was the key driver of the gold exchange.

'Local tael gold trading used open outcry, which could not attract overseas investors as the trading method and measurement were different,' Mr Lee said. 'The electronic trading system to be launched, however, will be able to match international trading practices.'

The electronic trading system would extend trading hours to 19 hours a day compared with just six currently, he said.

'This will match the London and New York markets. I am positive that turnover at the local gold exchange will go up substantially after the electronic trading system is launched,' Mr Lee said.

The exchange will extend its trading hours from 8am to 3am the next day after the introduction of electronic trading, compared with the current 9am to 5pm with a two-hour lunch break.

Mr Lee said he would like to see the government regulate the gold market so as to boost investor confidence in gold trading.

Increasing interest

The price of gold exchange membership has risen to, in HK$: $2m