Shanghai FTZ ban on London Metals Exchange warehouses remains

The central government will retain a ban on overseas commodity exchanges setting up warehouses on the mainland, a government source said, dashing expectations for London Metal Exchange (LME) warehouses in Shanghai's new free-trade zone.

Although the LME has been cautious about its chances, state media had reported that the exchange would be allowed to authorise commodity warehouses in the zone, while warehousing facilities did not appear on a list of banned activities.

Bringing the LME to the mainland was one of the major rationales the Hong Kong stock exchange gave last year for its US$2.2 billion acquisition of the LME. Warehouses on the mainland would allow the world's biggest marketplace for industrial metals such as copper and aluminium direct access to the top consumer of those metals.

"Foreign exchanges will not be allowed to have warehouses in the free-trade zone. The current ban will stand," said the source with direct knowledge of the policy.

The ban was issued by the China Securities and Regulatory Commission (CSRC) in 2008.

Although the Shanghai government in its draft proposal sought to have the LME open storage facilities in the zone, the source said the idea ran into strong opposition from the securities regulator.