Bank of China sets up onshore commodities trading unit

SHANGHAI Thu Aug 29, 2013 7:23am EDT

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SHANGHAI Aug 29 (Reuters) - The international arm of Bank of China has set up a commodities trading unit on the mainland as it looks to beef up its presence in the sector, a senior bank official said.

Chinese regulations prohibit banks from trading physical commodities, with the exception of gold. Therefore Bank of China, the country's fourth largest lender by market value, used its overseas subsidiary to apply for a trading license.

As a wholly foreign-owned enterprise (WFOE), Bank of China International (BOCI) is allowed to trade physical commodities onshore and futures contracts through brokerages on the Shanghai Futures Exchange, the official told Reuters.

"We received the WFOE license in June and we're preparing to launch our trading operations," Jiang Xu, deputy general manager of BOCI's global trade services, told Reuters on the sidelines of a conference in Shanghai on Thursday.

"The bank already has operations in New York, London and Singapore, each focusing on different commodities. We want to build on our strength and grow our commodities business."

Bank of China International plans to start trading in base metals and may expand to other products later, Jiang said.

While China's massive demand for resources has underpinned worldwide markets for everything from oil to iron ore, Chinese banks have been relatively slow to embrace commodities trading.

Bank of China Ltd last year became the first Chinese member of the London Metal Exchange and the CME Group and is the most advanced in the commodities space among its Chinese peers. Its New York office focuses on agricultural products and it also has oil and oil products trading desks in Singapore and Hong Kong.

Other Chinese banks are also eager to build a commodities trading arm, as Western banks which have dominated the market are cutting back or shutting their commodities operations on growing regulatory restrictions and balance sheet constraints.

ICBC, China's biggest bank by assets, is in advanced talks to buy Standard Bank's markets business in London, which includes currency and commodities trading, for more than $500 million.

Banks with commodities trading WFOEs in China include Morgan Stanley, Standard Chartered, Standard Bank, JPMorgan Chase & Co., Deutsche Bank and Citigroup Inc. (Editing by Himani Sarkar)

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