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M’sia pushes ahead for mercantile exchange

June 25, 2013

KUALA LUMPUR: The proposed mercantile exchange for Malaysia is still in the pipeline, undeterred by the recent collapse of the Hong Kong Mercantile Exchange (HKMEx) that began two years ago with much steam but could not find enough trade to keep afloat.

The Securities Commission (SC), which regulates the Malaysian capital market and entrusted with the responsibility of drafting the proposal for the exchange, is all set to submit the proposal to the Ministry of Finance (MoF) soon.

The working deadline for the proposal to be submitted to Finance Minister Datuk Seri Mohd Najib Razak is at the end of this month.

The proposed mercantile exchange, apart from the local stocks and derivatives exchange, is part of the Capital Master Plan 2 for Malaysia. The exchange is intended to serve the purpose for trading and hedging of gold futures, precious metals and even expand to other commodities like agricultural produce, energy and others.

“The SC is currently at the advanced stage of putting the right framework in place for the mercantile exchange. The report is in the midst of being finalised and to be submitted to the MoF before the end of the second-quarter, on track with the timeline as previously stated,” an SC spokesperson said in an emailed response to The Malaysian Reserve.

The decision to go ahead with the proposed exchange is an indication that the government is determined to set up its very own mercantile exchange in Malaysia.

Hong Kong recently saw the HKMEx collapse after operating unprofitably since the opening in May 2011 with volumes of trade at low levels.

However, industry and regulatory sources that are in the loop on the set-up of the Malaysian mercantile exchange believe that Malaysia will not suffer the same fate as Hong Kong.

According to industry experts, HKMEx founder and chairman Barry Cheung is an experienced hand in the oil industry and had the intention of energy and commodities trading directly with the mainland. It had the support of the Hong Kong government and that brokers joined the HKMEx with expectations of fast and furious trading and profit.

However, HKMEx suffered from a forced shift of its original plan for energy trading after the mainland imposed restrictions on overseas oil trading, forcing the exchange to scrap its energy trading ambitions.

The exchange then turned to gold trading but the HKMEx found it impossible to rival the Chinese Gold and Silver Exchange Society’s turnover of up to HK$80 billion (RM256.8 billion) a day.

Only two products were traded in Hong Kong — a gold futures and a silver futures contract, both denominated in US dollars. The exchange collapsed in a mysterious way that is still being investigated.

When asked about the lessons that Malaysia could learn from the HKMEx, derivatives trader and founder of Acute Precision & Studies Research Inc DAR Wong told The Malaysian Reserve: “HKMEx has always been struggling with low volume and participation has been below the brim all this while. It is not a surprise the exchange failed with the competition to over the counter gold markets which operate on lower margin.”

Another source familiar with the workings of mercantile exchanges said: “HKMEx was privately held. That could have contributed to some of its downside.”

HKMEx was privately held and boasted an influential group of minority shareholders, which included Eni+, a unit of the Chinese shipping company Cosco Group and a unit of the Industrial and Commercial Bank of China, the world’s biggest bank by market value.

“Malaysia may be different as it intends to start off the trading with precious metals like gold and silver and later explore other commodities,” said one industry executive.

Malaysia, with its large Chinese and Indian-origin population, has an appetite for precious metals like gold. It is understood that in the month of April this year, when gold prices tanked to extreme lows, the demand for gold increased over five times.

This content is provided by FMT content partner The Malaysian Reserve.


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