London Metal Mini Futures Frequently Asked Questions 
18/01/2016 
 
Section 1 General Questions

Section 2 Questions on London Aluminum/Zinc/Copper/Nickel/Tin/Lead Mini Futures

Section 3 Questions on RMB Collateral for RMB Products

Section 4 Other Questions

 

Section 1 General Questions

1.     Why should HKEX launch commodities products?

      • The acquisition of LME allows HKEX the opportunity to expand its commodities business
      • Leveraging on the accelerating pace of China’s internationalization
      • To meet Chinese users’ hedging need against international commodity price risks
      • To strengthen commodity pricing in the Asian time zone to reflect Asian supply and demand dynamic  

2.     What are the benefits of trading these commodities futures contracts on HKFE platform?

      • To gain exposure to LME market
      • The smaller contract size compared to regular LME’s futures contracts will make it easier for retail investors to participate
      • Facilitate hedging and arbitrage in the Asian time zone
      • Gain exposure to offshore RMB

3.     Why did you choose these 6 metals products first?

      • Copper, aluminium, zinc, nickel, tin and lead are the most traded metal products in terms of volume and value. So we start with these three metals

4.     Have you recruited market makers yet?

      • We have confirmed a number of liquidity providers to quote prices on screen
      • We have also introduced different types of incentive programs to boost trading volume

Section 2 Questions on London Aluminum/Zinc/Copper/Nickel/Tin/Lead Mini Futures

1.     Who are the target participants?

      • Mainland physical trading companies who prefer RMB settlement in the Asian time zone
      • Arbitragers between onshore and offshore base metals prices
      • Mainland and Hong Kong retail investors

2.     Why is HKFE different from competitors in terms of launching LME mini futures contracts?

      • Trading and settlement in RMB can leverage on Hong Kong’s advantage as an offshore RMB centre, and it’s more convenient for onshore investors’ margin financing at offshore in RMB
      • RMB denominated contracts make it easier to arbitrage between HKFE and SHFE
      • Leverage on the network of over 30 HKFE participants with Mainland backgrounds and their ability to attract Mainland investors

3.     Why did you choose the second ring close as the settlement price?

      • This is the LME’s Official Settlement Price
      • It is the benchmark against which most physical industry players settle their contracts

4.     Why are London Metal Mini Futures contracts denominated in CNH?

      • To match the increasing exposure to underlying contracts in RMB
      • Offshore RMB deposit size is growing in Hong Kong
      • To ease margin financing for those companies with offshore RMB
      • To set up RMB pricing for metals in the Asian time zone

5.     What is TMA pricing?  

      • TMA is Hong Kong’s Treasury Markets Association
      • The pricing is the benchmark of the spot USD/CNH rates in Hong Kong published at 11:15 am each business day
      • The pricing is determined by averaging the middle quotes after excluding the highest 3 quotes and lowest 3 quotes from the 18 contributing banks (subject to changes by TMA from time to time)

6.     Why didn’t you use London pricing?

      • The TMA USD/CNH pricing is the most representative and recognised offshore USD/CNH pricing
      • The TMA USD/CNH pricing reflects the supply and demand for CNH in Hong Kong, which is the largest offshore RMB centre

7.     Why are the contracts cash settled?

      • Cash settlement is more convenient for retail investors and short-term traders

8.     How will the block trade facility work?

Exchange Contract

Minimum Volume Threshold
(no. of contracts)

London Aluminium Mini Futures 50
London Zinc Mini Futures  50
London Copper Mini Futures 50
London Nickel Mini Futures 50
London Tin Mini Futures  50
London Lead Mini Futures 50


Section 3 Questions on RMB Collateral for RMB Products

1.      Will there be portfolio margining provided for the new products?

      • Margin offset between products will not be available for the new products on Day 1. This is something we will consider once there is adequate liquidity and correlations developed to make the case

2.      Will RMB and/or any other currency be adopted as the collateral?

      • For the new products denominated in CNH, at least 50% of initial margin must be in CNH; remaining margin can be in other currencies accepted by HKCC. Variation adjustment must be in RMB  

Section 4 Other Questions

1.     Who can trade these products?

      • All investors who are interested in trading these products can trade through any HKFE EPs with the necessary clearing/settlement capability in place

2.     What is the margin level of these products?

3.     What is the margin call arrangement for the new products?

4.     What is the price limit for the new products?

      • We adopt nil price limit for both day trading session and after-hours trading session

 

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