HKEx to establish metal trading in Qianhai, its first mainland China entry

HKEx plans a metals trading platform and warehouse in the special economic zone. An announcement is likely to come on Wednesday, sources said.

PUBLISHED : Tuesday, 26 April, 2016, 3:41pm
UPDATED : Tuesday, 26 April, 2016, 3:41pm

Hong Kong Exchanges and Clearing will establish a metals-trading platform in Qianhai.

It will be the local bourse’s first physical expansion to the mainland and is a major step forward for it to further grow its commodities business, two sources told the South China Morning Post.

Qianhai officials are expected to announce the HKEx plan on Wednesday when they host an event to mark the first anniversary of the Guangdong Free Trade Zone.

Qianhai, a special economic zone next to Shenzhen and about an hour by car from Hong Kong, is a core area of the free trade zone that offers tax incentives and allows special dispensations to foreign firms to conduct yuan trade, financial services, retail and logistics businesses.

A source familiar with the situation told the Post that HKEx has already set up a company in Qianhai as the first step for the bourse to prepare to introduce its metals-trading platform and warehouse for physical delivery on the mainland.

The exact timing of the launch is unknown and it would still need approval from the mainland securities watchdog, the China Securities Regulatory Commission. and other related authorities, the source said.

“Qianhai has always been keen to work closely with the Hong Kong financial services sector to further develop,” what we can offer, the source said. “The metal trading platform of the HKEx and gold vault project of the Chinese Gold and Silver Exchange Society would be two major Hong Kong projects to be further developed in Qianhai.”

HKEx is a listed company and it would enjoy the tax benefits by setting up the company in Qianhai

The Post on Monday exclusively reported the Chinese Gold and Silver Exchange Society will team up with the Industrial and Commercial Bank of China to use its gold vault in Qianhai for jewellery manufacturers and traders for storage and delivery. That trade could start in September. It will also spend HK$1 billion to establish a permanent gold vault and trading floor and offices in Qianhai in two years time.

HKEx chief executive Charles Li Xiaojia said in January the HKEx wanted to launch a commodities-trading platform on the mainland as part of its three-year strategic plan but did not give details.

Another source told the Post that the HKEx chose Qianhai as the location for its metals-trading platform on the mainland because of the tax incentives and flexible policies it offers.

Companies — registered in Qianhai and meeting certain criteria — are assessed on a preferential tax rate of 15 per cent, compared with the conventional 25 per cent. Qualifying individuals are assessed on a 15 per cent rate against the standard 40 per cent.

“HKEx is a listed company and it would enjoy the tax benefits by setting up the company in Qianhai,” another source said.

Li said in January that the mainland commodity futures market was dominated by financial firms that traded commodities futures and settled in cash only.

The end users, such as manufacturers who need to settle with the physical metals for use in production, mainly trade in spot deals and not the futures markets.

“The HKEx platform will attract all players. We are exploring the establishment of spot commodity trading on the mainland supported by warehousing and a financial platform,” Li said in January.

HKEx, which operates the local stock and futures markets, bought the London Metal Exchange, the world’s biggest metals exchange, in 2012 as a way to expand into commodities.

The exchange on Thursday will hold its annual general meeting with local fund manager Edward Chin Chi-kin and the head of a London metal trading firm, Apurv Bagri. They will seek shareholder backing for seats on the board. The HKEx board has supported Bagri because it wants a representative with metal-market knowledge.

Besides the two local exchanges, HSBC, Bank of East Asia and Credit Suisse are also going to have their joint-venture brokerage firm start operations in Qianhai this year. Additionally Hang Seng Bank will set up a joint-venture fund house in the special economic zone.