HKMEx's failure shows challenge in starting market

While Hong Kong Exchanges and Clearing says commodities trading contributed to its 2 per cent profit growth in the first quarter, former rival Hong Kong Mercantile Exchange floundered and was last week ordered by a court to be wound up after failing to repay almost HK$100 million in debt.

HKMEx was founded and chaired by former executive councillor Barry Cheung Chun-yuen, a key supporter of Chief Executive Leung Chun-ying. For someone who had such strong connections to fail running a new exchange showed how difficult it is to put up a new commodities market in the city from scratch.

"HKMEx was set up at the wrong time by the wrong person, and it closes at the wrong time too. It is a sad story," said Haywood Cheung Tak-hay, the president of another rival - the Chinese Gold & Silver Exchange Society. "Cheung is formerly an oil company executive who has no experience in gold and silver trading. For an outsider to run an insider business in gold, this is very difficult."

Before the closure of HKMEx, Barry Cheung had tried to improve HKMEx and was in talks with the gold exchange for a potential tie-up between them. However, before that could happen, Barry Cheung handed back HKMEx's licence to the Securities and Futures Commission on May 18 last year, after it failed to meet the cash-flow requirements of the regulator.

The HKMEx was set up in 2008 to trade oil contracts. However, Beijing's restrictions for overseas exchanges to deal with mainland oil users forced it to trade gold and silver instead.

HKMEx's HK$500 million electronic trading platform finally opened in 2011 but it had only 37 brokers, compared with 450 for HKEx.

Its trading was so thin that on its last day, only 181 contracts were left to be settled. It failed to generate enough money to pay the exchange's rent or salaries.