After more than two years' delay and a change in the designated commodity of trade from oil to gold, the Hong Kong Mercantile Exchange will go into business next month, having finally received the Securities and Futures Commission's approval.
First floated by HKMEx chairman and veteran oil executive Barry Cheung Chun-yuen in the midst of a typhoon in July 2008, the exchange was originally envisioned as a platform to trade fuel oil and come on stream in early 2009. But the global financial crisis and system testing delayed regulatory approval. In July 2009, Cheung dropped the plan to trade fuel oil contacts due to weak demand and replaced it with gold.
When the exchange opens on May 18, its 16 members, including BOCI Securities, ICBC International Futures, Interactive Brokers, Morgan Stanley Hong Kong Securities and OSK Futures Hong Kong, will trade 1kg gold bar futures in US dollars through an electronic trading system, with physical delivery in Hong Kong. It will be open 15 hours each weekday from 8am, allowing simultaneous trade with commodity markets in Europe and the US.
'This will help promote cross-continent trading and boost liquidity,' HKMEx president Albert Helmig, said. 'It also offers extensive opportunities for hedging, arbitrage and effective risk management.'
Record-high gold prices, now hovering around US$1,500 per ounce, have triggered renewed interest in the precious metal. This makes HKMEx's launch timely but it will still face a lot of competition. Hong Kong Exchanges and Clearing as well as the Chinese Gold and Silver Exchange Society also trade gold, as do many overseas exchanges, including those in London and Singapore.
HKEx's gold futures, which are only settled in cash, had an average daily volume of 178 contracts last month. The century-old Chinese Gold and Silver Exchange Society also offers gold bar trading with physical delivery.