HSBC's gold entry signals busier futures
Source: Agencies |
August 5, 2011, Friday
|
Print Edition
Print Edition
CHINA giving HSBC Holdings access to its gold futures market, a first for a foreign bank, is likely to be a harbinger of a further opening to local and overseas institutions to trade the precious metal.
For the Shanghai Futures Exchange, which has received tepid interest in its gold futures, having HSBC as a trading member is arguably one of the best endorsements that it will play a larger role in China's booming gold market.
That process in turn will enhance the lagging role of futures in Shanghai's gold market - an essential component in its plans to become a gold trading center on a par with London and New York.
But openings such as this are likely to be confined to gold for now, according to analysts, as China wants to keep a tight grip on the futures markets for other commodities from copper to soybeans, seen as a bedrock of China's economic stability.
Chen Baizhu, a professor of finance at the USC Marshall School of Business, said the HSBC move "is a structural shift and has a deep symbolic importance. It sends the signal that Chinese regulators are ready to take the next step to develop the gold market and are ready to start linking up with international players."
China's moves to free up the gold market will not only create more trading opportunities for foreign banks, but also allow them to tap growing local demand for gold investment products.
In the longer term, being a major gold trading center would boost the country's involvement in setting global prices.
China, the world's top gold producer, second-largest consumer and sixth-largest holder of reserves, already boasts a flourishing trade on the Shanghai Gold Exchange (SGE), set up in 2002 after half a century of government monopoly.
There, banks, producers and refiners trade spot gold and the SGE's spot deferred contract, using it as a hedging tool since its launch in 2004.
But the road to building a successful international gold trading market - part of China's broader aim of turning Shanghai into a world-class financial center within the decade - will require a series of overhauls to the financial system, not least the creation of a thriving futures market.
The Shanghai Futures Exchange (SHFE) launched a gold futures market in 2008, but that failed to garner much interest due to limited bank membership and short trading hours. Average monthly trading volume of the SHFE's gold futures ranges from 50 to 60 percent that on the main gold exchange, even though turnover of gold futures tends to exceed spot volume by many times on other exchanges.
By letting in HSBC, one of the world's leading gold trading houses, the SHFE will pave the way for more foreign and local banks to join the market - a big step toward the liberalization of the tightly controlled gold sector and one that could help deepen the derivatives market.
For the Shanghai Futures Exchange, which has received tepid interest in its gold futures, having HSBC as a trading member is arguably one of the best endorsements that it will play a larger role in China's booming gold market.
That process in turn will enhance the lagging role of futures in Shanghai's gold market - an essential component in its plans to become a gold trading center on a par with London and New York.
But openings such as this are likely to be confined to gold for now, according to analysts, as China wants to keep a tight grip on the futures markets for other commodities from copper to soybeans, seen as a bedrock of China's economic stability.
Chen Baizhu, a professor of finance at the USC Marshall School of Business, said the HSBC move "is a structural shift and has a deep symbolic importance. It sends the signal that Chinese regulators are ready to take the next step to develop the gold market and are ready to start linking up with international players."
China's moves to free up the gold market will not only create more trading opportunities for foreign banks, but also allow them to tap growing local demand for gold investment products.
In the longer term, being a major gold trading center would boost the country's involvement in setting global prices.
China, the world's top gold producer, second-largest consumer and sixth-largest holder of reserves, already boasts a flourishing trade on the Shanghai Gold Exchange (SGE), set up in 2002 after half a century of government monopoly.
There, banks, producers and refiners trade spot gold and the SGE's spot deferred contract, using it as a hedging tool since its launch in 2004.
But the road to building a successful international gold trading market - part of China's broader aim of turning Shanghai into a world-class financial center within the decade - will require a series of overhauls to the financial system, not least the creation of a thriving futures market.
The Shanghai Futures Exchange (SHFE) launched a gold futures market in 2008, but that failed to garner much interest due to limited bank membership and short trading hours. Average monthly trading volume of the SHFE's gold futures ranges from 50 to 60 percent that on the main gold exchange, even though turnover of gold futures tends to exceed spot volume by many times on other exchanges.
By letting in HSBC, one of the world's leading gold trading houses, the SHFE will pave the way for more foreign and local banks to join the market - a big step toward the liberalization of the tightly controlled gold sector and one that could help deepen the derivatives market.
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