HKMEx sets launch date for next month

PUBLISHED : Thursday, 28 April, 2011, 12:00am
UPDATED : Thursday, 28 April, 2011, 12:00am

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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.

Legislator Chim Pui-chung, who represents the financial services sector, said: 'Besides HKEx and the Chinese Gold and Silver Exchange Society, many gold brokerages offer clients gold trading facilities. I don't think HKMEx will have much active trading.'

But Stephen Hui Chiu-chung, vice-chairman of OSK Holdings Hong Kong, whose futures arm is a member of the new exchange, said the HKMEx would offer investors more choice.

Cheung, the HKMEx chairman, said global demand for core commodities had been driven by Asia, especially China and India, but traders now relied on western exchanges to hedge futures prices. 'Our new platform will offer Asia a bigger say in setting global commodity prices. It will also enable market participants to more actively manage their risk exposure, using products tailored to Asian market needs.'

The HKMEx plans to introduce other products covering precious metals, energy, agriculture and commodity indices but has no timetable for their launch.

The three clearing members of the HKMEx are Interactive Brokers (UK), MF Global UK and Morgan Stanley & Co International. All transactions will be cleared through London-based LCH.Clearnet. The shareholders of the exchange include the mainland's ICBC and Cosco Group and Russia's En+ Group.