Charles Li Direct 
29/09/2014 
 

Charles Li Direct

Unlocking the value of the LME


 

There is a lot of news and discussion today on the changes to the LME fee structure, so I wanted to share my views about that and how it fits into our overall strategic plan.  Ever since we acquired the London Metal Exchange in 2012 we have been talking about our aspirations for the exchange.  Not long after the first LME Week Asia in 2013, I wrote on my blog:

Today, the LME is already a global leader in metals trading and the pricing centre for the global commodities market.  This success proves the LME already has an incredible business model.  As the new owners of the LME, we want to further build on this leadership.  We will do this by building LME Clear, insourcing LME's IT and building a trade repository.  We want to make access to LME's electronic trading platform as easy as possible for global investors, traders, producers and consumers.  All these together will create greater flexibility to develop a broader range of products.

Our vision from day one was to invest in the bourse, commercialise it, and utilise its reputation and Hong Kong's strengths to connect the Mainland and international commodities markets.  Rather than change the bourse, we wanted to build on its solid foundation and grow it further.  And so far, we've gotten quite a bit done!

We have made a substantial financial investment in the LME since the acquisition.  One of the highlights was the in-sourcing of information technology, which enhances the reliability and stability of the trading system and gives us more flexibility for future enhancements.  We also reinforced our commitment to the LME Ring, announcing in June that it would stay open as the LME’s lively – and historic – trading floor.  And last week, LME Clear was launched.  With its new technology, LMEmercury, we have delivered a world class, real time risk and clearing platform.

The launch of LME Clear is a tremendous step forward.  Now we have not only the trading of metals contracts but also the post-trade processes – the clearing and settlement and risk management of positions.  LME is no longer dependent on another clearing house for these vital processes; it is master of its own destiny.  The launch of LME Clear marks a new phase for both HKEx Group and the LME, not only as the beginning of the realisation of the LME's commercial potential, but also in giving us essential freedom and leverage to pursue our strategic options, particularly relating to new products, new currencies, and new time zones.  

Today's changes to the fee structure fit into the overall objective of commercialising the bourse.  It is a key step to unlocking the bourse's value while ensuring that we respect our users and maintain our competitiveness.

It will also enable us to capitalise on our strengths for the benefits of users as well as HKEx shareholders.  We believe that the new fees are moderate and fair, and respect all market users while being competitive with other exchanges' tariffs.  The fee changes will enable us to continue to invest in new services, products and people, and to continue building out the business globally, particularly here in Asia.

All of this fits into our overall strategy, which is to build HKEx into a leading global multi-asset class exchange in the Asian time zone that connects China and global financial markets.  A key step is launching Shanghai-Hong Kong Stock Connect, which is right around the corner.  It is a landmark scheme that will open mutual market access in our core cash equity business for the very first time.

Acquiring the LME is the most integral part of our FICC franchise.  The strategic vision for our commodity business is threefold: first, we enhance LME and consolidate it into a truly global leader in base metals; second, we pursue an eastward extension of the LME's reach and build a Hong Kong-based commodities platform; and finally we will leverage the Hong Kong platform to pursue mutual market access with our Mainland counterparts.

With our additional investments, the launch of LME Clear and new commercialisation programme, we have largely achieved the first part of our strategy and we are actively moving into the second and third components, which begin with the planned launch of our Asia commodity products in December.  Shanghai-Hong Kong Stock Connect, once successfully launched, will become an important model of mutual market access for other asset classes.

While we are making good progress, there is still a long way to go.  Our team is continuing to work to realise the full potential of the LME in connecting the international commodities markets with Mainland China.  I believe the best is yet to come.

 


 

Share your thoughts on Charles Li Direct with us.  Email: ceo@hkex.com.hk.  All emails sent to this address will be read, however, due to time constraints, the chief executive will be unable to respond personally to every email.  If you have general enquiries or comments about HKEx, its products or services, please contact us through one of our usual channels.  Thank you.

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