HKEX given green light for Qianhai Mercantile Exchange

Offices in special economy zone already have electronic displays up-and-running, as well as a perfect replica of London Metal Exchange’s iconic trading pit, ‘The Ring’

PUBLISHED : Thursday, 11 May, 2017, 5:00pm
UPDATED : Thursday, 11 May, 2017, 10:23pm

Qianhai Authority has given its official green light to Hong Kong Exchanges and Clearing (HKEX) to set up a commodities platform in the special economy zone – the commercial area in Shenzhen, also known as Qianhai New District.

Beijing is yet to give its final approval, and the local bourse still offered no time frame on when trading might be rolled out.

Several hundred metal traders from around the world attended a forum on Thursday on the planned commodities platform, which will be managed by an authority subsidiary, Qianhai Mercantile Exchange.

HKEX chief executive Charles Li Xiaojia led a tour of the newly set-up office, which already has electronic displays up-and-running to show London Metal Exchange (LME) commodity prices, video displays of trading on the LME floor, as well as a perfect replica of LME’s iconic trading pit, “The Ring” – the famous circle of seats on the LME floor which brokers occupy when trading metals.

LME was first founded in 1877 but traces its origins back to 1571 and the opening of the Royal Exchange in London. It has been a wholly owned subsidiary of HKEX since 2012.

At this stage, however, the new Ring and the screens are all just for display.

“We have not yet decided when the platform will start trading, what products will be launched nor what type of trading methods will be used by the platform. We are still working on a lot of preparation work,” Li said.

What was confirmed is HKEX plans to offer physical commodity settlements at the site, so among its long list of items needing planned are warehouses able to store the physical metals.

Li said it will certainly be more than a year before the operation takes shape, but is positive of its success and delighted Qianhai officials are offering such strong support.

“The platform will further tighten the business relationship between Qianhai and Hong Kong,” said Wong Jinxia, associate director and deputy director general of Qianhai Authority.

The zone, which is around an hour’s drive by car from Hong Kong, will offer lower tax rates and flexible regulations to attract Hong Kong and other international companies to take commercial space at the size.

Wang said there are already over 3,300 Hong Kong companies registered in Qianhai, including many leading companies.

The Chinese Gold and Silver Exchange Society, for instance which dates back to 1910, set up a platform in Qianhai last year, allowing 60 gold traders to operate from there.

HKEX first started the process of setting up the wholly owned subsidiary Qianhai Mercantile Exchange late last year.

“It is unimportant when the platform will roll out. More important is for us is to establish the foundation of this platform to make sure it will work smoothly when it does start trading,” Li said, adding the platform represents a major step forward for Hong Kong’s development as a commodities trading centre.

The [commodities trading] platform will further tighten the business relationship between Qianhai and Hong Kong
Wong Jinxia, associate director and deputy director general, Qianhai Authority

“Hong Kong is a small place and so finding enough land for a warehouse for physical delivery would be difficult. The development of the commodity platform in Qianhai provides the land we need,” Li said.

“We could also use this platform to connect with the three other main commodity futures exchanges in the mainland [Shanghai, Dalian and Zhengzhou].”

Over the past week, Li has been busy promoting the creation a Commodity Connect trading link between Qianhai Mercantile Exchange, those three mainland commodity bourses and the LME, to allow cross border and international trading and cross listing of metal products.

“China is the world’s largest metal consumer. The country’s ‘Belt and Road Initiative’ will boost demand for commodities in coming years, “ Li added.

Launched by Beijing in 2013, the Belt and Road is aimed at building roads, railways, power plants and other infrastructure in 65 countries across Asia, linking China with Europe and improving trade and economic growth.

The mainland’s commodity futures markets are very successful, but they are mainly traded by retail investors and not by end users or manufacturers who need physical metal settlements for their productions.

These manufacturers trade at about 1,000 spot exchanges, but they are considered too fragmented and poorly regulated. Beijing now wants to put them in proper order.

“The tighten up in regulation of these exchanges will allow healthier development long term,” Li said. “This is just the right time for HKEX to prepare to launch the commodity platform in Qianhai.”