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Friday, October 23, 2015, 10:14

SAR poised for another connect — with London

By Oswald chan
SAR poised for another connect — with London

Traders busy on the job at the London Metal Exchange. A proposal to link up the commodities markets of Hong Kong and London was announced during President Xi Jinping’s state visit to the United Kingdom. The new commodities trading link will enable Chinese mainland companies and institutional investors to hedge their business risks, internationalize their asset allocation and influence price setting in the commodity trading process. (Matthew Lloyd / Bloomberg)

Hong Kong is on track for yet another major financial-market link — a proposed London-Hong Kong Connect to link up the commodities markets of the two global financial centers.

The plan, which is part of a slew of key economic co-operation pacts unveiled by China and the United Kingdom during President Xi Jinping’s state visit to the UK this week, has been hailed by Hong Kong Exchanges and Clearing Ltd (HKEx) as one that will cement the SAR’s position as commodities trading hub in the Asian time zone, and fortify the city’s strategic role as the primary risk-management and wealth-management center.

A non-binding Memorandum of Understanding has been signed by Hong Kong Futures Exchange Ltd (HKFE), HKFE Clearing Corp Ltd (HKCC), the London Metal Exchange (LME) and LME Clear Ltd — subsidiaries of HKEx and members of the HKEx Group — according to a HKEx statement on Wednesday.

It calls for the proposed development of a trading link between HKFE and the LME, as well as a clearing link between HKCC and LME Clear to be called London-Hong Kong Connect.

If implemented, the link will enable HKFE’s eligible exchange participants to trade LME products and HKCC’s eligible clearing participants to clear those trades, the statement said.

The new link, first mooted by HKEx Chief Executive Charles Li Xiaojia, will join the first-ever Shanghai-Hong Kong Stock Connect, which was launched in November last year, and the upcoming Shenzhen-Hong Kong Stock Connect, which is widely expected to be announced later this year, in further elevating Hong Kong’s role in financial markets in Asia and the world.

“Our link will be an important bridge between Hong Kong and London ... Intermediaries and investors in Hong Kong will be able to have fast, stable and low-cost access to the LME,” HKEx Chairman Chow Chung-kong said.

“Giving participants access to the highly liquid metals market in London via Hong Kong is especially important as companies in the region can centralize their risk management functions via Hong Kong platform. This milestone is further evidence that Hong Kong is ideally positioned to support the mainland’s integration into global markets,” said Helen Wong, chief executive for Greater China at HSBC.

Implementation of the London-Hong Kong Connect will be subject to regulatory approval in Hong Kong, the UK and the European Union, but no date has yet been fixed.

Currently, the LME is the world’s trading center for 11 industrial metals, including cooper, aluminum, tin, nickel, zinc and lead, monopolizing more than 80 percent of the global industrial metals trading business. The LME network has more than 700 warehouses across 38 locations in 14 countries and regions.

HKEx bought LME for $2.2 billion in 2012 with the aim of gaining a foothold in commodity trading.

The new commodities trading link will enable mainland companies and institutional investors to hedge their business risks, internationalize their asset allocation and influence price setting in the commodity trading process.

“As mainland investors gain more opportunities to move beyond their home market under the Chinese mainland’s gradual opening measures, we want to be able to offer them access to multiple asset classes so they can benefit from a broad variety of investment opportunities,” HKEx’s Co-head of Global Markets and LME Chief Executive Garry Jones said.

Anderson Cheung Keung-sang, head of Asia precious metals at China Merchants Securities (HK) Co Ltd, predicted that the London-Hong Kong Connect will help the LME to become a 24-hour commodities trading platform, diversifying the transaction volumes of commodities trading in Asia and fostering more arbitrage activities by commodity investors.

oswald@chinadailyhk.com

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