The London Metal Exchange is looking at expanding its presence in Asia and could eventually allow remote membership, Garry Jones, ceo, told Metal Bulletin in Shanghai recently.
The remote membership, which could be a new category-8 member, will be able to trade electronically but will still need to have a clearing member, he said.
“It is not specifically for China but does have [that] implication because in China you can’t just set up to trade externally unless you have certain clearances and if you are a foreigner then you need to set have a QFII [qualified foreign institutional investor] quota or WOFE [wholly foreign-owned enterprise] structure,” he said.
The remote membership proposal “has not been finalised yet” but the exchange is discussing “how can we allow for access of remote members and we are looking at how you can access and it’s through the existing membership,” he added.
Asia commodities platform
The LME and Hong Kong Exchanges and Clearing (HKEx) have set up an Asian commodities group to look at new products that are likely to be launched, primarily for Asian clients, on the Hong Kong Exchange, Jones said.
“So the company strategy is to diversify into other assets and we have futures in currency and fixed income [on the HKEx], we need to grow that as well,” he said.
The HKEx is discussing various commodities products including a potential launch of coking coal and iron ore products on the HKEx, he said.
The Asia commodities group on the HKEx has three functions, he told delegates at the copper conference in Shanghai last month.
“The first one is to promote LME products as is and out in Asia, the second function is to look for new products which we offer directly for Asian clients and again this is on the LME in terms of clearing and in terms of LME platform potentially [denominated in] RMB,” he said.
“Thirdly we will be looking as a group to starting new commodities market not just in metals in Hong Kong but in RMB as the currency underlying it,” he said.
LME will be able to launch renminbi-based products after its clearing house is launched in the third quarter of next year.
“Having our own clearing house LME Clear by September next year would allow us to take collateral in renminbi and this is very important in terms of development of our services,” Jones added.
There is already an existing offshore renminbi market in London and offshore renminbi market in Hong Kong that would allow for launch of new products and services from the bourse, he said.
Collaboration with Chinese exchanges
The LME and HKEx have been looking to cooperate with domestic Chinese exchanges.
“We are not in direct competition with Shanghai or Dalian or Zhengzhou and we are looking to work with them,” Jones said about the Chinese exchanges.
Around 20% of trading on LMEselect is business from China, Jones told the conference adding “we are looking at expanding business in whole of Asia not just China”.
“Let’s hope an exchange such as ours with international distribution, technology etc and the Shanghai Futures Exchange with its domestic distribution and domestic benchmark and structure should find some sort of way to cooperate,” he said
Cooperation between the two markets would mean expanding the local domestic market in China and expanding the range of hedging vehicles and getting more liquidity, he added.
“If and when they announce night market we will support it as there is arbitrage between the two markets and clearly not as perfect arbitrage because you have to place margins in two places etc. but down the road there can be something there,” he added.
But this will depend on regulatory changes in China, he said.
SHFE is testing its night market for base metals on December 7 and 8 and will launch it on December 20. It has plans for a base metals index and is also testing gold and copper options.
On Tuesday December 3, HKEx ceo Charles Li and the Singapore Exchange ceo Magnus Bocker signed an agreement to promote internationalisation of renminbi, collaborate on product development, technology and regulation.
At the LME Week Asia in Hong Kong earlier this year, Li said the bourse was looking at collaboration not competition with China and brokers had said co-listing products on SHFE and LME would boost volumes and help arbitrage.
Shivani Singh
shivani.singh@metalbulletinasia.com
Twitter: @ShivaniSingh_MB