Bullion exchange chief sees a gilt-edged future
William Lee says online trades just first modernisation step
You could say William Lee Tak-lun's kith and kin have gold running in their veins. Three generations of Lees have been trading bullion in China and Hong Kong since the 1940s.
Mr Lee, president of the Chinese Gold & Silver Exchange Society, is now leading the 98-year-old exchange into the 21st century. The bourse introduced computerised trading recently to augment its open outcry system.
While that modernisation might seem to be a big break with tradition, Mr Lee's own roots are firmly anchored in gold trading.
His father Lee Woo-sing is a well-known broker who in the early 1940s was a gold trader in Shanghai. He continued with that trade after moving to Hong Kong in the 1950s.
Aside from his influence in financial circles, the elder Mr Lee is famous for his friendship with former premier and fellow opera lover Zhu Rongji. Both men are advanced Peking Opera amateurs who have practiced together from time to time. William Lee and his son have inherited that love of opera.
William Lee followed in his father's financial footsteps 25 years ago, setting up Grand Financial Group to trade securities and gold. He has been vice-chairman and chief executive while his son Robert recently joined as senior vice-president. With gold prices setting record highs, there is renewed investor interest in bullion.
William Lee was elected president of the exchange last year after serving on the council for 22 years. Under his leadership, he has launched the biggest reform programme in the century-long history of the bourse, changing it from a membership-based organisation into a corporation.
Last month, he introduced an electronic trading system for US dollar gold contracts and extended trading hours from six hours a day to 19? hours.
His next goal is to lobby the government to strengthen oversight of the local bullion market, ending self-regulation and boosting Hong Kong as a leading international market for gold.
Gold reached a record high of more than US$1,000 per ounce last month but has since dropped back to about US$930. What are the reasons behind the strong price movement and what is your outlook for the market?
Gold will trade between US$900 and US$1,100 this year. As long as the US dollar remains weak and inflation and energy price continue to be high, gold will still be buoyant. It is a hedge against inflation.
The gold exchange has had a soft launch of its electronic trading platform, but volume has been thin. Will that affect the official launch and what will you do to attract more investors and members to the system?
We saw more new investors in the market after we launched the electronic platform and now have about 17 members trading. Our other members still use the floor to trade Hong Kong dollar settled tael gold. When we officially launch the electronic system in the second half of the year, it will be a key driver of turnover, as it will allow longer trading hours and investors around the world will be able to trade.
Legislative councillor Chim Pui-chung, who represents the financial industry, has called for gold trading to be more tightly regulated by the government. Do you agree?
The gold market needs more regulation. There are unregulated gold shops that scam people and that has hurt investor confidence. The government needs to introduce regulations to boost confidence in gold trading. The Chinese Gold & Silver Exchange Society is also willing to end self-regulation and discuss with the government how to turn itself into a recognised exchange subject to proper regulation. The gold exchange has operated for 98 years without much problem. However, without government recognition, it will be difficult for the exchange to develop further.
I want the government to set rules and guidelines for us and give an appropriate time frame for us to be up to the standard required to become a recognised exchange like the Hong Kong Exchanges and Clearing.
Banks, brokers and local gold shops have been trading bullion for many years. How can the Chinese Gold & Silver Exchange Society encourage them to trade with your exchange system?
Banks, brokers and the gold shops all have different prices and charges. If the government can turn the gold and silver exchange into a recognised exchange, we can act as a market centrepiece with higher transparency and governance. This will provide a fair, open and regulated market for all investors.
You want to transform the exchange from a membership club into a corporation and eventually list it. When will that happen and what will the benefits be?
We will first implement our plan to change ourselves into a company. As an exchange wholly owned by its 171 members, we need to take care of their benefits. Sometimes it is hard to proceed with reform. For example, we initially launched our electronic trading system with HK$12 million, but if we want to further develop and upgrade it, we may need millions more. Not all members will want to pay for it. By changing into a corporation, we can place shares or go public to raise funds for these developments.
We do not have a timetable for listing yet, but that may well be something we can do in the future.
Do your members support these changes and a possible listing?
A majority of members support the change of structure.
HKEx has set up a working group with the Chinese Gold & Silver Exchange Society to study how the two can work together to launch gold products. How is that going?
The HKEx has a close relationship with the Chinese Gold & Silver Exchange. Almost half of our members are also participants at the HKEx, including my own company. One of the four stock exchanges that combined to form the HKEx was also formerly a subsidiary of the gold exchange.
But we have fallen behind in terms of technology. The HKEx launched its electronic trading system in the 1990s and is much bigger than we are. It is like comparing a cow with a mosquito. But we are trying to catch up.
Shanghai also has a gold market. Do you think it could be a rival to the Chinese Gold & Silver Exchange Society?
That is why I said earlier that the Hong Kong government needs to work with us to develop the local gold market. The Shanghai gold exchange only set up last year while we have a much longer history. But the Shanghai market has support from the mainland government. It is now only acting as a domestic market because the yuan is not yet fully convertible. If the yuan becomes convertible, there will be no role for the Hong Kong gold market to play.
The Hong Kong government should act quickly to revamp gold regulations and to promote the local gold market. This will not just benefit of the Chinese Gold & Silver Exchange Society but also improve the competitiveness of Hong Kong as a leading financial centre of Asia.
The government has spent billions purchasing a 5.88 per cent stake in the HKEx to support its development in China. Why can't it also offer support to the gold exchange? I am not asking the government for money but it can help by setting the policies and regulations for us.
Would a possible solution be to merge with the HKEx?
I would not rule out the possibility, but I think the first step should be our reforms to strengthen the local gold market. Only if our trading system is efficient and our market is properly regulated can we consider merging with the others in future.
The society suspended silver trading many years ago. Will you resume trading of the metal with the market now focusing on commodities?
Yes. One of the problems of the exchange has been too few trading products. This is why we added US dollar traded London gold in ounces to the electronic trading platform in addition to the Hong Kong dollar traded gold in tael. In the future, we will think of more products such as silver. But again, unless the government recognises the exchange, investors will have no confidence to trade in our market.
Why did you become a gold trader?
I followed in the footsteps of my father Lee Woo-sing, who traded gold in the 1940s in Shanghai and then joined the Hong Kong market in the 1950s. Now my son Robert has joined the company. Three generations of our family have thus traded gold for more than 68 years.
Do you share the same personal interests as your father, who is a big fan of Peking Opera and has practised with former premier Zhu Rongji?
Yes, Mr Zhu and my father love Beijing opera and they play the erhu. Mr Zhu plays pretty well as he now has more time for practice since retirement. I and my son also like the arts and sometimes we give performances at home. My elder brother Lee Tak-chi is an advanced amateur and he has performed publicly. Grand Finance Group also sponsors Beijing opera performances from time to time.
Which Peking Opera star do you like most?
I like the maestro Mei Lanfang, whose family is close to ours in Shanghai.
Did you invest in gold and stocks yourself?
Yes, I have invested some money. I think stock trading is easier because it is easier to do the analysis. Gold trading sometimes is harder to predict.
Can you offer any tips to our readers on trading gold?
Be cautious and be aware of the risks involved. Don't invest more than you can afford. Like any investment, gold can go up and down and once if it goes wrong, it may lead to huge losses.
Gold stood at US$800 an ounce in the 1980s and it took almost 30 years for it to go back to the level.