New Silver Trading Platform Planned in Hong Kong

The Chinese Gold & Silver Exchange Society (CGSE) foresees a bright future for silver in Hong Kong and is making moves to play a bigger role in that future. Last week, the CGSE hosted its first Annual CGSE International (Silver) Conference, at which President Haywood Cheung spoke about the Loco Hong Kong Silver Contract, a new trading platform that the society plans to launch in the first quarter of 2013.

The CGSE is a metals market participant whose history dates back to 1910. A Reuters article notes that in addition to playing a major role in Hong Kong’s gold market, the society “currently offers electronic trading for Loco London gold and silver, which are denominated in U.S. dollars, and the Renminbi kilobar gold.”

Next year, the CGSE plans to expand its offerings. With the forthcoming Loco Hong Kong platform, the CGSE hopes to bolster the city’s precious metals trading hub status, reported China Daily.

Contracts will be denominated in Hong Kong dollars and will be required to be at least 10 kilograms in size. The CGSE plans to set up a subsidiary to act as a clearing house, China Daily also revealed. The silver will be vaulted at Hong Kong International Airport and physical delivery will be subject to a 30-kilogram minimum.

Within the first six months following the launch, the CGSE projects that 2 to 3 million ounces of silver per day will be traded on the platform.

Furthermore, Cheung recently told Reuters that the CGSE is in talks with Chinese officials to set up a bonded warehouse for gold and silver in Qianhai, a new financial zone in Southern China.

Up to 25 percent of the CGSE’s trade came from the mainland in 2011, and this figure is expected to rise to between 25 percent and 30 percent this year, Cheung said.

It would be a notable accomplishment for the CGSE to be allowed to pursue its warehouse plans as it would mark a shift in Chinese policy. The CGSE is registered in Hong Kong and as a foreign exchange it is not currently eligible to maintain mainland storage facilities. However, since China is a top producer and consumer of silver, the CGSE could see substantial benefits if it overcomes this barrier.

The CGSE’s plans for the Loco Hong Kong platform and Chinese storage are part of a growing trend whereby Asian players seem to be diligently aiming to shift the center of gravity in the metals markets away from the west.

In May, the Shanghai Futures Exchange began trading silver contracts. Its goal in doing so was to provide Chinese market participants with direct market access and to give them the capability of hedging domestically. Regulators also expressed hopes that the silver futures contracts would control price volatility and provide a pricing mechanism.

In June, Hong Kong Exchanges and Clearing (HKEx) outbid all competitors who were in the running to buy the London Metal Exchange (LME). The LME also wants to include China in its warehouse network and this deal is seen as an important step in furthering that goal.

After LME shareholders voted in favor of the deal, HKEx CEO Charles Li said, “I’d like to thank the shareholders of the LME for their support in welcoming this acquisition. Our shared vision for global leadership in the commodities market will allow us to respectfully build on the proud heritage of this unique institution. HKEx’s ability to help the LME grow its business in Asia and beyond provides significant opportunities for both parties and will deliver value for all of our stakeholders.”

Securities Disclosure: I, Michelle Smith, hold no direct investment interest in any company mentioned in this article.