Last month's UK referendum vote in favor of leaving the European Union is likely to have only a "limited" impact on the London Metal Exchange, Charles Li, chief executive of the LME's parent company Hong Kong Exchanges and Clearing, said Wednesday.
"We are confident the impact on the LME will be limited, because trading on the LME is global and not confined to the UK or even Europe," Li said in a blog post on the HKEx website.
"Members and customers are from around the world, with future growth concentrated in Asia. Furthermore, LME trading is basically done entirely in US dollars, with operating income primarily in US dollars as well. Only operating expenses are denominated in pounds," he added.
The Brexit vote has, however, complicated HKEx's "London-Hong Kong Connect" initiative, Li noted.
"London-Hong Kong Connect was designed to clear and settle LME trades in Hong Kong, and was subject to Hong Kong, UK and European regulatory authority," he said.
"With Britain withdrawing from the EU, there is some uncertainty about the policy developments in the UK. Therefore, we will wait and monitor the development of the UK and Europe's regulatory policy before making further plans to connect the commodities markets in London and Hong Kong," Li added.
HKEx does not expect Brexit to have an impact on any other initiatives, such as establishing LME-certified warehouses in the Chinese mainland, he said, adding that the company is still on track to launch its trading platform in Qianhai, Shenzhen to "physicalize" the mainland's commodities market.
While the mainland has more than 1,000 commodity trading platforms, "most lack credibility, supervision, or a strong regulatory structure, with others exploiting regulatory rules by promising high-yield, low-risk products," Li said.
"We hope to build a standardized, transparent, credible spot commodities trading platform in Shenzhen for physical delivery that will serve China's real economy," he added.
The biggest challenge facing the project is not from Chinese regulatory policy, but from "finding a way to adapt and customize global practices to the Chinese market," Li said.
"Although LME has a long track record in global commodities markets, the Chinese market is unique and we can't expect to copy the international model and paste it in China. We will need to consider the local conditions and develop a commodities platform that serves the particular needs and characteristics of the Mainland market," he said.
