SINGAPORE China's planned global gold exchange has signed up more members than targeted, as foreign banks and trading houses seek direct access to the world's top physical gold consumer and to test out reforms allowing them to trade commodities in the yuan currency.
The strong response from foreign players will boost efforts by China - also the world's biggest producer of gold - to gain pricing power over the metal and to challenge the dominance of London and New York in trading.
The Shanghai Gold Exchange targeted 30 companies for the first round of membership but has signed up 40, including many foreign banks, with just over a month to go before the launch, a senior source with direct knowledge of the matter said.
The exchange's progress is being closely tracked by the global trading community as gold is one of the first commodities that China is opening up to foreign players by allowing them to participate directly in physical trade and to use offshore yuan.
The bourse is set to begin operations on Sept. 29 in the Shanghai free-trade zone, with three yuan-denominated physical gold contracts, of 100 grams, 1 kg and the bigger London gold delivery bar weighing 12.5 kg, according to the source who spoke on condition of anonymity.
"It is too important a market to stay away," said Bernhard Schnellmann, director of Swiss-based Argor-Heraeus, one of the world's biggest gold refineries, which is considering joining.
"I think the SGE will be successful with this new exchange as they have a big home market and there should be enough liquidity."
The new free-trade zone is also seen as a testing ground for currency reforms, as Beijing takes cautious steps towards allowing full convertibility of China's currency.
Allowing foreign players to trade yuan-denominated bullion contracts - without the need to exchange into U.S. dollars - would give the Chinese currency more international exposure, while also drawing in demand for gold in offshore yuan. Trading offshore yuan is currently restricted to certain international financial centres such as Hong Kong, Singapore and London.
"Having a gold contract delivered in the free trade zone in local currency is interesting in terms of bringing together the onshore and offshore players," said a trader with a bullion bank that is considering being part of the exchange.
The senior source with direct knowledge of the exchange declined to name the companies that had signed up, but market sources said HSBC, Australia and New Zealand Banking Group, Standard Bank, Standard Chartered, Bank of Nova Scotia and J.P. Morgan were interested in participating.
Refiners Argor-Heraeus and the Perth Mint were also considering membership, company officials said.
It wasn't immediately clear if all the firms were joining as the first set of trading members or would sign up later.
Metalor had told Reuters in June that it would join as a founding member.
"We're very keen to explore cooperation in the Shanghai Free Trade Zone gold market and see the development of a new exchange as being a great opportunity to entice foreign investment to China's physical gold market," ANZ said in an emailed statement.
The other companies declined to comment.
The senior source with direct knowledge of the exchange said the 40 members that had signed up, including international banks, refiners and trading houses.
"The response has been better than our expectations," said the source. "After the opening of the exchange, we will increase the number of participants."
A spokesman for the SGE said it had targeted 30 members but declined to say how many had signed up.
China - the world's biggest buyer of raw materials from copper to coal - is pushing hard to establish pricing benchmarks for a number of commodities.
China and other Asian gold trading centres such as Singapore are seeking control over pricing of the precious metal as they seek alternatives to the so-called London fix, the global benchmark, which is being investigated by regulators on suspicion that it may have been manipulated.
The active presence of foreign players in the Chinese gold bourse is seen as an important positive step, though liquidity and full convertibility of the yuan would ultimately determine whether Chinese gold prices would be widely accepted.
(Editing by Ed Davies)