CME fights HKEx for futures business

Chicago exchange to launch contracts on H shares, red chips

Competition between Hong Kong Exchanges and Clearing and the Chicago Mercantile Exchange has increased with the American exchange announcing it will launch FTSE/Xinhua China 25 futures contracts in May.

The Hong Kong exchange introduced similar products in May 2005. The CME and HKEx contracts are based on the FTSE/Xinhua China 25 Index, which tracks the 25 largest liquid H shares and red chips in Hong Kong, such as China Mobile and PetroChina.

The US contracts will be denominated in US dollars while the Hong Kong contracts are traded in the local currency.

The CME index contracts will be launched just a month before HKEx introduces yuan futures contracts against the US dollar. The Chicago exchange launched the product in August last year.

'There is competition [between] the exchanges but I think competition is a good thing,' said Tina Lemieux, the managing director of products and services at the CME. 'It forces the exchanges to work sharper and better meet customer demand.'

Ms Lemieux said trading the CME contracts in US dollars would make it easier for US hedge funds and international investors to conduct hedging.

HKEx contracts traded only within Asian business hours - from 9.45am to 4.15 pm excluding lunch - while the CME product would be traded around the clock, she said.

Local brokers said that HKEx would be in a strong position to compete with the CME on the contracts.

'The underlying stocks in the FTSE/Xinhua China 25 are listed in the Hong Kong market. It is natural to do the hedging with the derivative products in Hong Kong,' said Tony Espina, chairman of the Hong Kong Stockbrokers Association.

An HKEx spokesman said it was normal for exchanges around the world to compete against each other. 'I am confident that the HKEx is ready to compete with its overseas counterparts.'

Only 8,154 FTSE/Xinhua China 25 futures contracts were traded in Hong Kong last year compared with 4.88 million H-share futures contracts. The most popular Hang Seng Index futures had 12.71 million contracts traded.

The Chicago exchange's website says only 5,407 yuan-US dollar futures were traded last year after the contracts were launched in August.