The London Metal Exchange expects to make its first foray into the lucrative Chinese market in the next year or so as a much-anticipated stock program pries open the world's biggest commodities market, its chief executive officer said in an interview.
The recently launched Stock Connect program allowing Chinese mutual funds to buy Hong Kong stocks is a "pivotal" moment in opening up the mainland to the West, Garry Jones told Reuters on the sidelines of the CRU Copper conference.
The benchmark Hang Seng Index hit fresh seven-year highs this week as mainlanders have poured money into stocks, seeking bargains.
Shanghai Connect is expected to expand to commodities, mainly metals, once equity derivatives are up and running, Jones said in the interview this week.
That is likely still at least a year away, but the LME, the world's biggest and oldest metals exchange, has other options for making its first steps into China part of a medium-term strategy.
It could offer order routing, cross-licensing contracts or physical market services such as the exchange's electronic LMESword system that proves the origin and title to LME-warranted metal, he said.
In the wake of a storage scandal in Qingdao port last year, banks and merchants have had to find new ways to keep track of the millions of tonnes of metal they are financing on behalf of customers outside of the exchange.
"We're having conversations around Sword, whether to use it in China in the spot market and bring in a new level of audit and control so we don't have another Qingdao," he said.
It would mark a major step for the LME after a decade-long effort to get coveted access to China, the world's biggest consumer of metal and considered a multibillion dollar opportunity for futures trading.
Hong Kong Exchanges and Clearing Ltd promised to shepherd LME-registered warehousing into China during its $2.2 billion takeover of the LME three years ago, but a ban on foreign bourses running depots is still in place. "Charles Li has a vision. The LME's part of it. Over time, we'd like to see an open market between China and the West," said Jones.
His comments come 18 months after he was appointed the new chief, overhauling warehousing policy that has plagued the exchange for years and recently introducing measures he hopes will boost turnover and liquidity.
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