HK stock exchange to build emissions, gold markets

Hong Kong’s stock exchange has set forth its policy direction in emissions trading and commodity markets, following the completion of a private consultation exercise.

Hong Kong Exchanges and Clearing (HKEx) said it would seek to partner with an overseas exchange to build a trading and clearing platform for carbon and other emissions-related products in Hong Kong. It anticipated reaching some sort of agreement before the end of 2008.

Christopher Tung, partner with HKEx’s primary emissions trading consultant Mallesons Stephen Jaques said no specific commitment to a partner exchange had been made, and specifics from the confidential HKEx report could not be discussed. But speaking with a broader view, he said there are a number of possibilities for exchange partnerships across a number of categories, including existing major bourses and exchanges such the New York Stock Exchange and Nymex; and newer bourses established solely for emissions markets, such as the Chicago Climate Exchange (CCX).

“Surprisingly the London Stock Exchange hasn’t really moved on this,” said Tung.

CCX, with its European subsidiary European Climate Exchange (ECX) is the market leader in the space, according to Tung. “But it is by no means unchallengeable,” he said, adding that “strong combinations” of traditional and newer exchanges were emerging around the world. “There’s a possibility CCX/ECX might get completely absorbed,” he said, stressing he was talking of the wider view, not HKEx’s specific plans.

HKEx will also explore establishing an auction in Hong Kong for Certified Emissions Reduction (CER) units, which are carbon credits generated by Clean Development Mechanism projects. China accounts for the majority of global CERs generated.

The exchange would also continue to develop existing businesses (for example initial public offerings, Exchange Traded Funds and index linked products) with a focus on environmental and greenhouse gas markets.

The exchange’s commodity trading policy focuses exclusively on gold. It said it would submit a proposal on trading cash-settled gold futures and options to the Securities and Futures Commission.

“Expanding our existing businesses such as the derivative warrant and ETF markets with emissions-related products and gold-related products will help strengthen Hong Kong’s position as an international financial centre and exploring other opportunities in these areas will ensure we are well positioned for the future.” said HKEx chief executive Paul Chow. “Our market systems can support the trading of the products that are part of these initiatives so any IT-related investment will be insignificant.

“Initiatives like these tend to have lengthy timeframes so we are taking a long-term view,” Chow added.

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