HK Mercantile Exchange - New Kid In Town
The formation of an oil trading platform outside the auspices of Hong Kong Exchanges and Clearing (0388) is a slap in the face for the local bourse. HKEx could have pre-empted the evolution of the HK Mercantile Exchange by being more proactive in trading "commodity products". However, by dragging their feet, and the explosion of oil price has brought forward the need for HK Mercantile Exchange.
The Standard HK: Ever since creating such a platform became a strategic objective of the authorities here and on the mainland, it had always been expected that HKEx would assume a leading role in accomplishing the target that oil products be priced in an environment that reflects local circumstances more.
At present, oil products are priced in Dubai as they are sold to Asian buyers, and the lack of a corresponding trading system in the region undermines the regions ability to negotiate with the exporters for better deals.
But the West can obtain the same products at more competitive prices from the New York and London mercantile markets, where oil contracts are traded. Creating a similar platform here will serve Chinas interest because the country is the worlds second largest oil importer and consumer. Although three oil trading platforms are already operating in the mainland in Shanghai, Dalian and Zhengzhou none of them are open to outsiders. Hong Kong, given its open market environment and world-class regulatory mechanism, is best suited to contribute more to the national goal in this regard.
As a matter of fact, the HKEx has mulled over the idea for years. So far, it has yet to explain why it has failed to produce one ahead of the newcomer, Hong Kong Mercantile Exchange, founded by a private consortium led by Titan Petrochemicals Group, which has won the blessing of Financial Secretary John Tsang Chun-wah.
The HKEx should tell us if its failure to deliver one had anything to do with a technicality that was impossible to overcome, or simply a lack of will to make it happen.
We do not know whether the HKMEx will work out or not until after it commences trading next year. But the goodwill that the newcomer has obtained from Tsang is more than phenomenal because it leaves the de facto monopoly status enjoyed by HKEx open to interpretation.
There is little for the city to lose in giving the idea a try. It would be imprudent for anybody to say for sure at this moment the attempt is destined to be ill-fated as perdicted by some critics in the market even though there is always the risk of failure. Even if it ultimately fails, the experience gained will be useful in the future.
Oil has become a top concern for the world, no matter where one lives. Here in Hong Kong, we are at the mercy of oil firms along with everyone else in other countries. Didnt Shell raise its petrol and diesel pump prices by 38 HK cents a liter yesterday only a day after rival Caltex jacked up the prices of similar products by the same amount?
To be fair, it would be hard to tell whether or not establishing an oil- trading mechanism more reflective of local circumstances would be conducive to a more transparent environment in which oil charges are adjusted. But there will be little to lose from it. Nothing ventured, nothing gained.