As the natural buyers and sellers of commodities products, commercial users are the ultimate drivers of commodities volumes. The trading of commodities and associated futures and options contracts are fundamental to the business operations of the commercial users. These groups may connect directly to an exchange but often execute transactions through agents such as investment banks or futures brokers. Commercial users also are continuously subject to risk, as they are unable to produce their core products without commodities. Refineries are wholly dependent on the price and delivery of crude oil or fuel oil to produce petroleum products such as gasoline and diesel fuel. Airlines rely on jet fuel to operate, while shipping firms depend on bunker fuel. In addition, manufacturers such as technology companies often rely on a range of commodities including precious and semi-precious metals.
Professional traders represent a broad range of asset managers including institutional investors, pension funds, university endowments, hedge funds and algorithmic traders. These asset managers employ a broad range of trading strategies in the commodities and futures markets to earn investment returns. Professional traders represent significant assets under management and are a major source of liquidity. There are many professional traders throughout Asia, and many are based in Hong Kong, China and Taiwan.
The swaps desks of investment banks use commodity prices to create structured products such as commodity swaps that are in turn marketed to commodity users and producers. Since most swaps are traded OTC, swaps traders have a natural demand to hedge OTC swaps using futures contracts traded on an exchange. HKMEx will establish benchmark commodities pricing in Asia which in turn will drive hedging demand in the swaps market.
Arbitrage traders seek to identify price dislocations between multiple markets. Arbitrageurs will be attracted to execute transactions on HKMEx because of the price discovery of significant commodities throughout Asia. The easy currency convertibility of our US dollar-denominated products will be another attraction to these traders.
High net worth individuals have significant investable assets and are generally clients of private banks and investment banks. Asia, in particular Hong Kong and China, is home to a large and fast-growing population of high net worth individuals who are seeking investment diversification.