HONG KONG/LONDON Jan 15 Hong Kong Exchanges and Clearing said on Tuesday it will introduce Asian time-zone price discovery and clearing on the London Metal Exchange (LME), in a move that could hold off competition from its Shanghai rival.
The initiative was unveiled by Chief Executive Charles Li in the exchange's 2013-15 strategic plan in Hong Kong, along with plans to establish an LME-licensed warehouse network in China and potential to extend the LME's production suite into the Hong Kong market.
Introducing a third, earlier, round of trading sessions is the biggest shift in the way the 135-year old LME operates since the launch of its electronic platform over a decade ago, and runs counter to the global industry trend toward shutting down trading pits in favor of faster, cheaper electronic platforms.
An Asian session is the most concrete effort yet to increase business from Asian investors since the LME extended electronic Select trading hours in 2006 and introduced Asian reference prices in 2011.
The LME has seen its share of the global copper futures market eroded by both the Shanghai Futures Exchange, where Chinese speculators are active, and CME Group, whose active electronic platform and familiar futures structure has attracted high-frequency traders.
Li said HKEX would expand the LME's offerings by lowering barriers to trading from Asia, extending the LME's warehouse network in the region, particularly mainland China and developing Asian time zone clearing and possibly Asian time zone price benchmarks and developing renminbi clearing.
"When China begins exporting capital, that's when they'll want to talk on their terms," Li told a presentation in Hong Kong. "That's why we need to be ahead of that by allowing for Asian trade of commodities, in an Asian time zone."
HKEX will also use the LME's status as the world's biggest metals marketplace to extend HKEX's commodity platform into ferrous metals, such as iron ore, coking coal and energy, Li said.
"We need to extract the value that LME can bring to us," Li said. "As a metaphor, we need to extract $10 from every $1 we put into LME."
HKEX, the world's No.2 exchange operator by market value, paid $2.2 billion for the LME last year, as it seeks to expand beyond its traditional business in equities trading.
Li has hailed the acquisition as "transformational", giving the Hong Kong bourse operator access to the LME, but has come under pressure to justify the high price tag.
HKEX's share price has risen almost 30 percent since mid-October last year, compared with a 10 percent rise in the Hang Seng Index