| HONG KONG, June 24
HONG KONG, June 24 The most lucrative first step
for Hong Kong Exchanges & Clearing Ltd (HKEx) to
profit from its expensively acquired metals business would be a
new type of membership that could attract Chinese clients, a
brokerage executive said.
HKEx paid $2.2 billion for the London Metal Exchange (LME)
last year and is under pressure to show a return on its
investment, partly by attracting Chinese banks as members. But
it has so far drawn only one mainland financial institution.
Jeremy Goldwyn, a director of London-based Sucden Financial,
said that HKEx is considering a new "Category 8" membership that
would allow Asia-based clients to sidestep costly requirements
of having a physical presence in London to trade on the world's
biggest metals marketplace.
Such a move could help to attract clientele from China's
huge commodity trading market, said Goldwyn, whose firm is a
"Category 1", or ring-dealing, member of the LME.
The LME said that it "regularly reviews new market access
models" but had no immediate comment on specific options.
"If they bring in new membership it will increase activity
and boost volumes quickly - an easier and quicker method (of
luring Asian business) than launching new contracts," said
Goldwyn, who is responsible for Asian business development at
Alongside Asia-based banks and brokers, allowing "black box"
and other systematic traders access to a new membership
category, as has been mooted, would attract new clients and
boost overall trading volumes on the LME, he said.
"All those banks in Singapore ... that currently have to pay
clearing brokers, potentially wouldn't have to," he said,
adding: "I still think it will effectively increase the cake, in
that some of those customers will look to do business with other
Still, the biggest driver of business to the exchange is
likely to come from subtle shifts in China's policies on markets
such as foreign exchange, and from new regulations in the United
States and Europe, he said.
Monthly settled contracts, which HKEx has also mooted, could
help it to claw back or at least stem some of the business it is
losing to CME Group, Goldwyn said.
CME runs the monthly cash-settled Comex copper contract, the
world's second-biggest after the LME.
The COMEX contract's share of the market last year increased
to 13 percent from 11.7 percent in 2011. Its monthly volumes
rose by 30 percent to an average of 15.3 million tonnes, from
11.8 million in 2011.
But the LME still dominates the global market. Its average
monthly futures trading volumes measured in tonnages rose by 4
percent to 74 million tonnes in 2012, from 72 million in 2011.
Despite growing competition from other exchanges, Chinese
clients with an appetite for trading price differentials across
products and markets would also have appetite for an iron ore
futures contract because it would open up another market to
trade, Goldwyn said..
"A lot of the appetite for the business out of China for
commodities is on an arbitrage basis, for which you need
liquidity and ... frequency of trading," he said.
"A liquid iron ore futures market has great potential. Coal
is a little more complex, but it's similar."