Potential members are drawn from the critical commodities trading firms and other trading participants in the region and around the world. We are targeting a diverse group of membership segments: Chinese commercial firms, regional brokers, international commercial firms, global futures brokers, global financial institutions, physical commodities traders and market makers. Each segment brings unique trading styles and goals for participating on the Exchange, and we have already had multiple discussions with the majority of these potential members.
Leading Chinese commercial firms play a major role in the commodities markets. As net buyers of commodities, these firms do not have access to international price discovery with proximity to China and are required to hedge imperfectly on international exchanges. HKMEx will mitigate these issues faced by such firms by providing China tailored international price discovery to support an alternative hedging platform while minimizing counterparty risk.
Hong Kong has a vibrant trading community that is home to regional brokers serving the needs of local customers. Qualified local investors may have significant demand for investing in and trading of commodities and would conduct business through these regional brokers. These end users may employ a range of investment strategies from day trading to speculation. HKMEx will offer new products for Regional Brokers to market to qualified local customers while providing access to a new avenue for these local customers to diversify their investment portfolios.
As net sellers of commodities, these firms play a major role in international markets. As US dollar denominated exporters to China, international commercial firms seek new avenues for effective hedging of currency risk. HKMEx will mitigate these issues faced by said firms by providing destination pricing to hedge transportation and price risks on an alternative hedging platform. In addition, an exchange alternative will minimise counterparty risk.
The leading global futures brokers are consistently in the top 5 of liquidity providers on the world’s futures exchanges. Each generally operates with a strong presence in Asia but with access to countries and futures exchanges around the world. Their wide range of customers include financial institutions, industrial groups, hedge funds and other asset managers to professional traders and private/retail clients. These customers are a significant source of liquidity and represent the entire universe of trading styles. Several global futures brokers have expressed a strong interest to connect to HKMEx for multiple reasons including the ability to sell new trading products to their customers and an open commodities exchange in the Asian time zone.
The major banks and investment banks have historically been and continue to be major liquidity providers on the global futures exchanges. They employ a broad range of investment strategies including speculation, internal risk management and structured product hedging. Moreover, investment banks have served as prime brokers to hedge fund and high net worth clients across a range of strategies. Several global financial institutions are interested in HKMEx as a source of destination pricing and an alternative hedging platform to satisfy both internal and client driven trading demand. Given the recent turmoil amongst several global financial institutions, counterparty risk is a significant issue driving more transactions onto exchange.
There are multiple diversified commodities trading companies based in or with significant operations in Asia. These companies are typically involved with the origination and distribution of global commodities and therefore have significant exposure to pricing risk and transportation costs. These physical commodities traders would typically utilise hedging and speculative trading strategies on exchange. The vertical business model typical of this segment also makes physical commodities traders natural buyers and sellers of the core commodities. HKMEx provides these traders with an alternative platform for the hedging of price and transportation costs in Asia. In addition, counterparty risk will be minimised on exchange.