LME "breakthrough platform" for RMB internationalization

"The London Metal Exchange Limited (LME) is a breakthrough platform for internationalization of the renminbi (RMB) and Hong Kong Exchanges and Clearing Ltd. (HKEx)", HKEx Chief Executive Charles Li said Wednesday.

Li reviewed the acquisition of the LME by HKEx in HKEx's 2012 interim results announcement, saying "the acquisition is a ground-breaking transaction for us and a transformative event for both parties in many ways."

"First of all, we have two highly complementary businesses," he said. As the world's leading base metals exchange, LME enjoys global market share estimated to be about 80 percent in the trading of base metal futures and options contracts.

It has a market infrastructure that is deeply ingrained in the world's commodities market but is short on access to the Asian market, especially China's market.

HKEx, on the other hand, is the international exchange of choice for Chinese Mainland, the largest consumer of base metals. As one of the largest equity exchanges in the world, HKEx is also the primary offshore fundraising platform for the Mainland.

Therefore, "by combining our advantages, we will be well- positioned to tap into Asia, especially China's commodity derivatives sector."

"Secondly, it will kick-start our strategy, which is to go beyond equities into new asset classes," Li added, as acquiring LME will give HKEx an immediate scale presence in the commodity derivatives sector.

"Last but not the least, the acquisition will provide a platform for significant revenue growth as the LME's business and operations will be expanding in Asia using our regional resources, infrastructure and network."

Li emphasized that in the long term, the combination of HKEx and LME will make RMB-traded commodity derivatives one of the key components of the offshore RMB ecosystem and position HKEx to enjoy the full benefit of RMB internationalization.

HKEx announced in June it had made a cash offer to LMEH,the holding company of LME,for its entire issued ordinary share capital. The proposed transaction was approved by LMEH's ordinary shareholders in July and HKEx expects it to be completed before the end of the year, subject to the satisfaction of certain conditions including regulatory approval.

As for RMB business development, Li said in the past six months, HKEx's RMB product offering has been further diversified, including the launch of the first RMB Gold ETF in February, and the first listed RMB sovereign bond as well as the first RQFII A- share ETF in July.

HKEx is also planning to introduce USD/CNH (RMB traded in Hong Kong) futures contract in the third quarter of this year.

Currently, there are a total of 41 debt securities, 2 ETFs, and 1 REIT available for trading in RMB on the Exchange.

"We believe the more diversified RMB product offering will attract and retain more RMB in the offshore market and will facilitate the development of RMB internationalization," said Li, adding that LME is a catalyst for further expansion of China's offshore capital and RMB pool asset in HKEx ecosystem.

As for HKEx's strategic vision, he said HKEx is building a vertically and horizontally integrated exchange model with comprehensive product depth, and the acquisition of LME will provide significant opportunities for product and vertical expansion.