Hong Kong needs around-the-clock gold trading
HKEX has presented proposals for two new gold futures products, to be launched as early as July, which would trade 16 hours a day – but brokers say that might prove too short
For the Hong Kong Exchanges and Clearing (HKEX) to be successful in its plans for gold trading, longer trading hours are needed as mainland and international customers are likely to need 24-hour servicing, according to leading traders in the yellow metal.
The HKEX has presented proposals for two new gold futures products, to be launched as early as July, which would trade 16 hours a day – but brokers say that might prove too short.
“The gold market trades around the clock. This is why our customers are trading at CME Group (Chicago Mercantile Exchange) in the US which traders 23 hours a day,” said Alfred Yeung Ping-kwan, founding chairman of Glory Sky Group, which trades gold and stocks for investors in Hong Kong.
HKEX earlier this month said it would start offering two new gold futures contracts – one in US dollars the other in yuan – with physical delivery.
Chief executive Charles Li Xiaojia said he wanted to launch in July if the bourse can get regulatory approval from the Securities and Futures Commission.
This will be the third attempt by the local bourse to launch gold futures contracts.
The last was during the financial crisis in October 2008. But the contract was scrapped in March 2015 after drawing little interest and recording virtually no turnover in 2014.
The Futures Exchange, now a unit of HKEX, first traded gold futures in the 1980s. But it was abolished in the mid-’90s owing to a lack of interest.
Yeung, who has traded gold for investors since the 1980s, said he believes there is potential for HKEX to successfully relaunch gold products this time, as long as it has longer trading hours and better product features. But still thinks more should be done.
The new contracts are to be traded for 16 hours – from 8.30am to 4.30pm, and from 5.15pm to 1am the next day – which is double the previous 9am to 5pm trading time between 2008 and 2015.
“I have seen many more customers wanting to trade gold in recent years, as the gold price has gone up and down.
“But I would say trading hours will be the key issue, and 16 hours are still not long enough. The gold market responds to important political events and other breaking news.
“If there was some bad news, such as a terrorist attack during the time the HKEX has no gold trading, then I can only arrange our customers to trade in the CME or other markets,” he said.
Gordon Tsui, managing director of Hantec Pacific, shares that view.
“If HKEX wants to compete with other gold exchanges such as CME, it has to allow its gold products to be traded around the clock.
“If US interest rates rise at midnight in Hong Kong, when the market might not be open, the natural choice would be is to trade in Europe or in the US. Hong Kong would lose out,” Tsui said.
“Rather, if we had similar trading hours to CME, and better products, HKEX may well be able to compete, as it is closer to the mainland markets where there are many investors who like to trade through the city.
“When we have created such a liquid pool, we can also attract other international gold traders to trade here,” Tsui added.
Christopher Cheung Wah-fung, the founder of Christfund Securities and the legislator representing financial services, expects HKEX to first trade its gold product for 16 hours, and then expand it to 24 hours a day.
“Many mainland investors like to trade gold. They are living in the same time zone as Hong Kong. As such, the proposed trading time of 16 hours a day may well be good enough for them to trade gold via the HKEX,” Cheung said.
“But note – not all futures brokers have their systems or workforce set up to trade around the clock. It would be better to try the 16 hours trading time for gold first,” he said.
“If there is investor demand for it to be traded longer, HKEX can extend this at a later stage.”
The gold price, which stood at US1,267.30 per ounce on Monday, has been highly volatile this year, rising 11 per cent from US$1,165 per ounce at the end of last year to a peak of US$1,296 in mid April, before falling back to current level.
“Gold is likely to continue its ups and downs over the rest of this year, as there are still a lot of political uncertainties to come,” Cheung added.
“The threat of terrorist attacks in the West and the North Korea missile tests are top of investors’ worries. They would like to trade gold as a safe bet. That’s why HKEX is picking just the right timing to relaunch its gold futures.”