INTERVIEW-HKEx plans to develop as commodities 'meeting ground'-CEO

Wed Dec 4, 2013 3:58pm IST

Stocks

   

* Plans to launch monthly metals contracts in Hong Kong

* HKEx eyes cross-listing SHfE metals contracts

* Future of LME's ring to be debated in 2014 (Adds more comments from Li, details on HK plans for RMB trade)

By Melanie Burton

SINGAPORE, Dec 4 (Reuters) - The Hong Kong bourse plans to build up its commodity business by co-listing global benchmarks in metals and other products and matching them with key contracts traded on China's exchanges, its CEO said.

By hosting both Chinese and global benchmark contracts, the Hong Kong Exchanges and Clearing Ltd (HKEx) aims to tap opportunities from arbitrage trade and the growing acceptance of China's renminbi currency internationally.

HKEx plans to launch monthly, cash-settled futures contracts based on its suite of London Metal Exchange (LME) contracts, in the second half of 2014, Charles Li told Reuters. The exchange bought the LME for an eye-popping $2.2 billion last year.

"Hong Kong traditionally is not a fertile ground for commodities," Li said in an interview on Wednesday.

"But the LME allows us to build a greater global leadership in base metals...and use that as a catalyst for us to broaden into a comprehensive commodity-based platform, by trying to create a meeting ground of products."

Working with China exchanges such as Shanghai Futures Exchange (ShFE), China's top exchange for base metals and the LME's closest competitor, HKEx also aims to cross-list contracts such as industrial metals, iron ore and thermal coal, Li said.

Dual-listed products would be cash settled but based on the contract's home settlement prices, he said. For China-based contracts with no international equivalents, HKEx would consider developing its own.

China's first iron ore futures launched on the Dalian Commodity Exchange in October and its first thermal coal futures contract debuted on the Zhengzhou Commodity Exchange in late September.

New products, in particular yuan denominated, would boost renminbi volumes traded on the exchange as the currency takes steps towards convertibility, a key part of the HKEx's growth strategy, and from which it can develop new products, said Li.

HKEx signed an agreement with Singapore Exchange on Wednesday to work together to promote the internationalisation of the renminbi, explore joint product development and collaborate on issues to do with technology and regulation.

BROADENING COMMODITIES' APPEAL

The Hong Kong bourse, which before its LME purchase last year was an equities exchange only, is also tapping its existing membership to widen the audience for new commodities products.

Some, like iron ore and thermal coal, are planned for launch under an HKEx banner, rather than as an LME contract, Li said.

New launches of London-based products must wait until after September, when the exchange's new inhouse clearing system launches, Li said, but Hong Kong based, cash-settled products such as a yuan-based copper contract or mini contracts, could be launched before then.

The departure last month of global broker Jefferies from the LME's historic open outcry ring has raised questions about whether the ring, Europe's last, can keep pace with current times.

But Li said that ring dealing volumes, although small at 5-9 percent of the exchange's base metals volumes, were important because they feed the benchmark. The issue would be examined in 2014, he said.

"The members need the exchange to generate (the benchmark), so you live with it. But as the exchange owner, you obviously look at the broader industry... and your own economics." (Editing by Michael Urquhart and Muralikumar Anantharaman)

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