The Hong Kong Mercantile Exchange's failure to come up with a viable gold futures business proved to be its undoing as it wilted under competition from more established domestic and international exchanges, market participants say. The HKMEx, launched in 2011 after two years of delay, struggled to achieve the trading volumes that would justify its operating expenses, it said on Saturday. Originally designed to be a platform for fuel oil futures, the HKMEx ended up being an exchange for gold contracts. HKMEx chairman Barry Cheung Chun-yuen last night denied media reports that said a businessman who had supported Chief Executive Leung Chun-ying had lent him more than HK$100 million. Cheung also said an HK$8 million loan in December 2010 from former legislator Chim Pui-chung to launch HKMEx had been returned in January 2011. "It came as no surprise that HKMEx had to stop operating as gold is a very international product traded in a competitive environment," said Joseph Tong Tang, an executive director of Sun Hung Kai Financial, which trades gold for its clients and is a member of the Chinese Gold & Silver Exchange Society but not the HKMEx. "The Chinese Gold & Silver Exchange offers both cash and futures products and has much bigger liquidity, while the HKMEx only offers futures." "Nearly all users - gold jewellery, bars and coins traders - are our members, we have already fulfilled their needs. There is little reason for them to trade on another platform with much lower liquidity," said Haywood Cheung Tak-hay, the president of the society, a rival of the HKMEx. Going by the number of transactions logged on its website, HKMEx's daily transaction volume amounted to about US$19.5 million. That is a fraction of the daily turnover of US$7.7 billion to US$10.3 billion on the 103 year-old Chinese Gold & Silver Exchange. Haywood Cheung said the fact that his exchange required investors to put down 2 to 3 per cent of a contracts value as a deposit for margin trading compared to the 5 per cent required by the HKMEx also sapped speculators' interest in the latter's platform. The idea of the HKMEx first appeared in the 2006 policy address of former chief executive Donald Tsang Yam-kuen, who had said Hong Kong had great potential as a trading centre for commodity derivatives. The original plan was to have US-dollar-denominated futures fuel oil contracts, particularly refined crude oil, trade through the exchange from March 2009. Financial Secretary John Tsang Chun-wah publicly gave his blessing to the plan in mid-2008, even though the Securities and Futures Commission had yet to grant HKMEx a licence. The blueprint was dropped, amid falling demand for the fuel and competition from more mature markets such as Singapore and Dubai. In its place, a US-dollar-denominated gold futures product began trading. The HKMEx said on Saturday it would try to raise US$100 million through a rights share issue to continue to operate while developing new products including yuan-denominated derivatives.