London Metals Exchange Sale – Down to HKEx, ICE, CME

As the sale for the London Metals Exchange (LME) winds down, questions remain about one of the prime contenders for the purchase; the Hong Kong Exchange’s (HKEx) Mercantile Exchange.

The top 3 companies in the bidding are the IntercontinentalExchange (ICE) in Atlanta, Chicago Mercantile Exchange (CME), and HKEx. However investors are now questioning how the HKEx will move forward given that China has such strong protectionism regulations regarding competition to the exchange. This will severly restrict competition and rival exchanges who don’t “play ball” with the Chinese authorities.

The Hong Kong Mercantile Exchange started trading in gold and silver futures in 2011, pricing in US Dollars. But they are going to launch gold, silver, and copper futures in Chinese yuans too in an effort to boost domestic demand.

Due to the HKEx’s monopolistic control of the market, firms are forced to use their reporting and clearing settlement services. This is a major boost to their profit margin, which was 74% in 2011, the highest of all international exchanges. Without competition for these services, customers are gouged with monopolistic pricing, and severely limit the HKEx’s global attractiveness.

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