Hong Kong Exchanges & Clearing (HKEX) will put on hold a planned commodities clearing link with its London Metal Exchange (LME) subsidiary due to uncertainty created by Britain’s vote last month to leave the European Union, the bourse’s CEO said.
Other initiatives by the LME, however, should not be affected by the Brexit vote, Charles Li said in his personal blog published yesterday.
Li said the planned link, which was designed to clear and settle LME trades in Hong Kong, would have been subject to regulatory authorities in Hong Kong, Britain and the European Union.
“With Britain withdrawing from the EU, there is some uncertainty about the policy developments in the UK.
Therefore, we will wait and monitor the development of the UK and Europe’s regulatory policy before making further plans to connect the commodities markets in London and Hong Kong,” Li wrote.
Last October, HKEX said it had started a preliminary study to build the link, which would allow big commodities importers in Hong Kong to effectively hedge their trading exposure through the LME.
The HKEX and LME also had hoped that such a tie-up would allow them to offer yuan-denominated futures and other commodities products to European investors, which would further expand the use of the Chinese currency globally.
Brexit, however, should not have an impact on other LME initiatives, Li said in his blog.
The LME, the world’s oldest and largest market for industrial metals, has been operating for almost 140 years, long before the EU was created, he said.
“We are confident the impact on the LME will be limited, because trading on the LME is global and not confined to the UK or even Europe,” Li said.
The exchange was continuing to press ahead with other plans, such as establishing LME-certified warehouses on the Chinese mainland and launching a spot commodities trading platform in Shenzhen, China.
“Our biggest challenge is not from mainland regulatory policy, which is designed to protect investors and build a robust market in China, but from finding a way to adapt and customise global practices to the Chinese market,” he said.