Hong Kong Exchanges and Clearing Ltd is the holding company for the city’s stock exchange, futures exchange and clearing company. Its market capitalisation made it the world’s biggest listed bourse as of the end of 2012. In December 2012, the HKEx clinched the US$2.2 billion takeover of the London Metal Exchange, the world's biggest marketplace for industrial metals.
LME unconcerned over parent HKEx's plan to launch new commodity platform
The London Metal Exchange has dismissed concerns that its Hong Kong parent’s plan to launch a new commodity platform could hurt its business in London.
“There is definitely no conflict in Hong Kong Exchanges and Clearing introducing a new commodity platform,” said Garry Jones, chief executive of the LME, the biggest physical metals exchange in the world which the HKEx acquired in 2012.
“What we are going to do is increase the global liquidity of commodities trading. There will be different liquidity pools in the two markets.”
HKEx on Tuesday announced its plans to launch four commodities products later this year, including three metal contracts most popularly traded at the LME - aluminium, copper and zinc. The size of these three mini LME contracts represents 20 per cent of all London contracts. The products in Hong Kong will be traded in yuan while London trades in US dollar.
A thermal coal contract, which is not traded on the LME, will be added as China has high demand for it. The coal contract will trade in US dollars.
Jones, speaking for the first time in Hong Kong since he took the top job last year, made the comments at LME Week which is the largest commodities event for metal traders, mining companies, and investors to exchange views on market developments.
The LME, which has faced challenges in recent years as some western firms such as Barclays scale down commodities trading, aims to find new members in Asia and China.
Jones said the LME now has a number of Chinese banking heavyweights as members, including the Bank of China and the Industrial Bank of China.
“There is a trend of eastern capital replacing western capital. We expect to see more Chinese firms becoming our members,” Jones said.
“But what is more important is to have more clients trading on the LME. The clients can trade through our members or they can join as members to trade. As long as we can provide products for customers to hedge their risks, they can trade with us.”
Jones said there was no plan to connect the memberships or trading platforms of the LME and the HKEx, although there are 17 firms that have memberships in both markets. HKEx chief executive Charles Li Xiaojia said he hoped to see an increase in memberships in both the HKEx and the LME.
While the LME has a network of 700 warehouses around the world in 38 countries for physical delivery of metals to buyers of its futures contracts, it faces the challenge of not yet having any warehouses in mainland China, which does not allow overseas exchanges to own warehouses there. This is contrast to the HKEx new commodity platform which has no physical delivery for contracts, just cash settlement.