By Leia Parker and Francesca Freeman
LONDON--Hong Kong Exchanges and Clearing Ltd.'s (0388.HK) deal
to buy the London Metal Exchange will lead to new commodity
offerings and provide the best opportunity for exposure to Chinese
growth and liberalization, Hong Kong Exchanges' Chief Executive
Charles Li said Monday.
The London Metal Exchange is primarily a marketplace for base
metals such as copper and aluminum. The Hong Kong Exchanges group,
or HKEx, is one of the world's largest exchange owners by market
capitalization.
Hong Kong Exchanges will begin working immediately to improve
the London Metal Exchange's existing products suite and to reduce
or eliminate barriers for Asian investors to trade, Mr. Li told the
Wall Street Journal Monday.
Then it will train its sights on using the LME to slot in new
commodity products, which may include iron ore or iron ore freight,
coking coal, rubber or possibly jet fuel, Mr. Li said. Some would
be Asia-based products, but would benefit from the LME's
credibility, he said.
Finally, HKEx will work to improve the market through electronic
trading and modernization, Mr. Li said.
HKEx secured approval from LME shareholders in July to acquire
the exchange, fighting off tough competition from other major
exchanges. Both CME Group Inc. (CME) and NYSE Liffe, the
London-based derivatives arm of NYSE Euronext (NYX), were
eliminated from the bidding process in May.
IntercontinentalExchange Inc. (ICE) lost out in the final stage.
The allure of improved access to Asia--particularly China, the
world's biggest consumer of metals--was key to the LME's decision
to choose Hong Kong Exchanges. The deal is expected to close in the
fourth quarter of this year, pending regulatory approval, the LME
has said.
Business opportunities for the LME and its new owner will depend
far more on how much China opens up to outside investment than on
the pace of China's economic growth, Mr. Li said.
The exchanges probably won't launch new commodities products
until they complete plans for a new in-house clearing mechanism,
which will guarantee trades. That could take 18-24 months, Mr. Li
said.
HKEx currently sees no reason to change the LME's existing
business model because it has worked well for decades, Mr. Li
said.
The best value in the tie-up will come through opening up more
business in Asia, Mr. Li said. HKEx plans to invest more in the
LME, rather than saving money through integration, he said.
Write to Leia Parker at leia.parker@dowjones.com or Francesca
Freeman at francesca.freeman@dowjones.com
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