Gold futures bid draws ire of physical exchange

PUBLISHED : Thursday, 17 January, 2008, 12:00am
UPDATED : Thursday, 17 January, 2008, 12:00am

A plan to launch trading in gold futures and options contracts this year has landed Hong Kong Exchanges and Clearing in the unflattering role of a 'bully', at least in the eyes of the city's 98-year-old physical gold and silver exchange.

Saying that the HKEx is 'trying to compete directly' with his organisation, Lee Tak-lun, president of the Chinese Gold and Silver Exchange Society, said the move 'would hurt our exchange substantially', given HKEx's listing status, advanced trading system and huge capitalisation.

'This is like a big bully throwing his weight around a much smaller rival,' Mr Lee said in a telephone interview.

HKEx chief executive Paul Chow Man-yiu yesterday said the board of directors had decided to launch cash-settled gold futures and options contracts trading within the year. It would also facilitate the launch of gold structured products and gold-related exchange-traded funds by investment banks and other issuers.

Spot gold hit a record high of more than US$900 an ounce on Monday, fuelling investor interest in gold futures and related products.

Mr Lee said HKEx's move would harm the physical exchange, which has been trading gold since 1910 mainly for the local jewellery sector.

As Hong Kong law does not give gold trading a monopoly, HKEx can launch gold futures without regard to the local gold exchange.

Mr Lee said the society would examine several measures of self-defence, including restructuring its membership, a public listing, the launch of electronic trading to replace the open-outcry method, as well as new gold futures products.

Mr Chow said that back in the 1980s, the futures exchange - part of the merged HKEx - carried gold futures products but withdrew them in the 1990s due to low turnover.

He dismissed concerns that the two markets would compete directly. 'But we could complement each other,' he said.

Legislator Chim Pui-chung called on the two sides to co-operate.