London Metal Exchange
Set up in 1877 to provide a venue for trade conducted among metal merchants in London, the LME was sold in 2012 to the operator of the Hong Kong stock exchange. In 2013, it was a defendant in lawsuits accusing Goldman Sachs, JP Morgan and Glencore-Xstrata of rigging the aluminium market.
Shanghai FTZ ban on London Metals Exchange warehouses remains
Ban on overseas commodity exchanges setting up warehouses to stay, source says
The central government will retain a ban on overseas commodity exchanges setting up warehouses on the mainland, a government source said, dashing expectations for London Metal Exchange (LME) warehouses in Shanghai's new free-trade zone.
Although the LME has been cautious about its chances, state media had reported that the exchange would be allowed to authorise commodity warehouses in the zone, while warehousing facilities did not appear on a list of banned activities.
Bringing the LME to the mainland was one of the major rationales the Hong Kong stock exchange gave last year for its US$2.2 billion acquisition of the LME. Warehouses on the mainland would allow the world's biggest marketplace for industrial metals such as copper and aluminium direct access to the top consumer of those metals.
"Foreign exchanges will not be allowed to have warehouses in the free-trade zone. The current ban will stand," said the source with direct knowledge of the policy.
The ban was issued by the China Securities and Regulatory Commission (CSRC) in 2008.
Although the Shanghai government in its draft proposal sought to have the LME open storage facilities in the zone, the source said the idea ran into strong opposition from the securities regulator.
"The overriding concern is that letting the LME have a mainland presence would pose a serious challenge to the Shanghai Futures Exchange (ShFE)," said the source,
An official from the CSRC declined to comment, adding that any questions would be answered at a regular press briefing tomorrow. An LME spokeswoman said the exchange was not aware of any new developments specifically relating to setting up warehouses in the Shanghai free-trade zone.
The ShFE lists futures in copper, aluminium, zinc and lead, placing it in direct competition with the LME for traders looking to hedge against or speculate on price movements for physical metal.
The LME has sought for many years to set up delivery networks in the mainland, a move that would help draw Chinese investors and end-users who would be able to better take advantage of the price arbitrage between the domestic and London markets.
In an acknowledgement of the hurdles, the LME's new chief executive Garry Jones said last week that its dream of opening metal warehousing facilities in the mainland is some way off.