Singapore 21/01/2016 - Hong Kong Exchanges and Clearing (HKEx) is exploring the development of a Mainland spot commodity trading and financing platform capable of ‘physicalising’ Mainland market benchmarks, the exchange said in its 2016-2018 strategic plan report on Thursday.
“We believe that true cross-border linkages between the Mainland and international commodities markets require closer alignment between physical and financial market participants,” HKEx said.
As such, it is also planning to pursue initiatives to further ‘financialise’ the London Metal Exchange, it said, without providing further details.
“We anticipate being able to develop credible and internationally relevant onshore benchmarks that are firmly grounded in the physical market,” HKEx added.
HKEx also reiterated its intentions to expand its commodities product complex in London and Hong Kong into areas of significant demand, including precious and ferrous metals, as well as value chain products in the base metals delivery chain and in the steel complex.
It also plans to expand LME Clear’s service into the large and important OTC-traded market.
As well, HKEx said it will also list LME products in Hong Kong in various forms in the future to bring untapped Asian liquidity to the LME.
Most recently in December, HKEx had introduced London nickel, tin and lead yuan-denominated mini futures contracts, adding to its suite of existing London aluminium, copper and zinc yuan-denominated mini futures contracts which were launched in December 2014.
In the medium- to longer-term, the exchange will be undertaking preparatory work for “London-Hong Kong Connect”, a scheme that connects the LME and Hong Kong Futures Exchange (HKFE) more directly.
Initially, the scheme will focus on ‘westbound’ trading and clearing of LME products for Hong Kong Futures Exchange participants. This will facilitate access to the LME for Mainland Qualified Domestic Individual Investors (QDII-2), as well as Asian corporates seeking to manage their international metals exposure.
In October, the LME had signed a memorandum of understanding to develop a trading link between Hong Kong Futures Exchange Limited (HKFE) and itself, as well as a clearing link between HKFE Clearing Corporation Limited and LME Clear, to be named London-Hong Kong Connect.
After the linkages are in place for “London-Hong Kong Connect”, HKEx plans to extend its scope at a subsequent stage by establishing a Mainland-Hong Kong “Commodities Connect” mechanism that will further link the two markets and make onshore commodities derivatives accessible to Hong Kong and international participants, it said.
HKFE, HKFE Clearing Corporation Limited (HKCC), the LME and LME Clear Limited (LME Clear) are all subsidiaries of HKEx.