The Shanghai Gold Exchange is continuing talks with Hong Kong Exchanges and Clearing Limited, parent company of the London Metal Exchange, to give greater access to its contracts, but isn't looking at direct partnerships with the LME, Lila Lu, SGE executive director, told S&P Global Platts/SNL Metals & Mining in a recent interview.
"[The] LME focuses on base metals so we don't see any possibility for a cooperation [between LME and SGE]. LME has nothing to do with [our cooperation with HKEx]," she told an SNL Metals & Mining reporter in Hong Kong.
London is currently undergoing a phase of reformation, spearheaded by trade body the London Bullion Market Association.
Current discussions involve five parties including the LME, CME and ICE.
Although no one will officially disclose details of the negotiations, owing to signed non-disclosure agreements, it is widely believed in the market that the LME is ready to roll out its own gold futures solution.
Back in March this year HKEx and the SGE signed a non-binding memorandum of understanding to consider potential joint development of precious metals products and cross-market connectivity, amongst other things.
"This is another important step in the development of HKEx's commodities business," said HKEx CEO Charles Li. "Our MoU with the SGE gives us a good foundation for strategic dialog and closer cooperation."
SGE Chairman Jiao Jinpu said that the "SGE is committed to innovation and the opening-up of China's gold market, to better serve the gold industry, and promote the internationalization of the yuan."
Some in London had suggested that it may be possible for the SGE to work with the LME via the relationship struck in the MoU.
However, Lu quashed that in the interview.
"We have been discussing with HKEx for a Shanghai-Hong Kong connect. The idea is to introduce SGE's existing contracts to Hong Kong," she said.
Lu also made it clear that the SGE is actively looking at potential partnerships with a variety of international exchanges in order to bolster its own global footprint. One name mentioned was CME. Again, the SGE has previously signed an MoU with the exchange in order to seek out growth opportunities.
"Some major exchanges are worried that they might be replaced by the SGE. We are an emerging force in this sophisticated market. Such competition is inevitable," said Lu.
She added that "many believe that the SGE's launch of the yuan-based gold fix is set to challenge London's [dominance in the gold market]. Such shallow thinking is wrong. [Prices in] London and Shanghai simply represent the demand and supply in respective markets."
Launched in April 2016, he new pricing mechanism -- officially called the "Shanghai Gold Benchmark Price" -- is traded basis physical gold ingots with minimum fineness of 999.9 and a standard weight of 1 kg.
The SGE performs centralized clearing, settlement and delivery for all executed orders, according to the exchange's website.
