Hong Kong’s main exchange plans to capitalise on what it believes will be demand for commodity risk management coming from China with the launch of metals, agriculture and other commodity derivatives denominated in the renminbi.
China’s influence in commodity markets is growing as the country needs access to financial and commodity derivatives markets to help companies and traders hedge price swings as Chinese demand for underlying commodities continues.
The move by Hong Kong Exchanges & Clearing (HKEx) comes as there is intense interest beyond Asia in the exchange’s plans to expand beyond its core business of initial public offerings, equities and expansion into renminbi-related services.
HKEx is the world’s largest exchange as measured by market capitalisation. It has been tipped as a possible bidder for the London Metal Exchange, the world’s largest venue for trading in aluminium, copper and other metals.
The bourse revealed in February that it planned to break into commodities after years of focusing on equities and financial futures trading. But it did not give details.
However, Charles Li, HKEx chief executive, said the exchange was likely to focus on commodity products that could be used by domestic Chinese traders and companies that wanted to hedge risk in renminbi.
“We will be looking for bespoke models where we can fill unique [gaps] in the market with unique products. We are not trying to compete with any one exchange in existing [product] liquidity,” Mr Li said at a Futures Industry Association conference in Florida.
Products could include metals, agricultural commodities and “soft” commodities – a category that includes coffee, cocoa and sugar. “Most people are not in that [renminbi-denominated] territory yet,” Mr Li said.
The only existing Hong Kong-based bourse to offer commodity derivatives is the Hong Kong Mercantile Exchange (HKMEx), a new venture which last year made its debut with gold and silver futures contracts.
Backed by Chinese state companies and Russian billionaire Oleg Deripaska, HKMEx this week said it would launch a renminbi-denominated gold futures contract along with other precious metals.
Also in the pipeline are renminbi contracts in copper and other base metals, and “other futures contracts in energy, agriculture, and commodity indices”, it said.
Mr Li said his exchange could team up with other exchanges or businesses in its commodities venture.
“We’re looking at being able to do it in a joint venture format or partnership,” he said.
He declined to comment on whether HKEx was bidding for the LME. However, Mr Li did have a meeting with Martin Abbott, LME chief executive, at the conference.
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