June 1, 2009 / 4:23 PM / 10 years ago

HongKong exchange to launch gold futures

LONDON (Reuters) - The Hong Kong Mercantile Exchange (HKMEx) plans to launch with a gold futures contract in the fourth quarter 2009, its president said on Monday.

“We are trying to open it with gold in the fourth quarter,” Albert Helmig, the president of HKMEx told the Reuters global energy summit.

“We are launching energy contracts in 2010, not necessarily fuel oil, but feedstocks and petroleum products,” he said.

“It is our intention to expand over the energy basket in 2010.”

Last year, the exchange had said it would launch fuel oil futures in March this year.

But this was delayed due to complications related to physical delivery in China, Helmig said, referring to “very unique issues that are hard to execute.”

Gold futures contracts normally take no physical deliveries but cash settlements. He also said Hong Kong would provide the exchange with geographical advantage for gold futures.

“Hong Kong always was a traditional gold center,” he said.

Gold is traded in many exchanges in the world including key markets in New York and Tokyo.

Helmig, the former vice chairman of the New York Mercantile Exchange, also said Hong Kong had an advantage over mainland China as it would attract domestic and international participants.

It would have bridging functions between trading the time lag between New York and London.

ENERGY CONTRACTS

Helmig said the potential energy contracts to be launched next year on the HKMEx would include the crack spreads, or oil products’ relative value to benchmark crude oil, which can be used as a hedging tool for margins, or profit levels of oil refiners.

There is a gap in service for crack spread hedging in Asia. New refiners are coming on-stream, including Reliance Industry’s Jamnagar in India, he said.

“Asia crack might be more functional than taking hedging positions in Europe or the States,” he said.

The Jamnagar refinery will become the world’s largest when it comes fully on-stream later this year.

Helmig said there was still demand for such contracts despite the global financial crisis, which started in September last year and has since constrained flow of money.

“It is always good timing to launch an exchange as long as customer demand is there,” he said.

When the HKMEx was announced in June last year, names of its potential investors and members included investments banks such as now-bankrupt Lehman Brothers.

Helmig declined to disclose details about members and shareholders except for Reliance Money, a unit of India’s Reliance Capital (RLCP.BO), which last year announced it had bought a 15 percent stake in HKMEx.

Reporting by Ikuko Kao, Jane Merriman and Barbara Lewis, Editing by Peter Blackburn

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