 "We are looking at strengthening our ties with the Indian market: Garry Jones")
The London Metal Exchange is looking for opportunities in China and India. In an interview with Rajesh Bhayani, Garry Jones, LME’s chief executive officer and co-head of global markets at HKEx, says “so far as a market needs a ring we will continue to have it”. Edited excerpts:
What is your impression of the future of commodities derivatives based on your discussions with governments and regulators?
We had some discussions with government officials and the Reserve Bank of India and tomorrow we are meeting the commodity market’s new regulator, the Securities and Exchange Board of India. I can share with you my impressions based on our discussions. There is a concern to see Indian businesses remain glob-ally competitive. They are not negative on Indian companies hedging or trading more on foreign markets so far as it adds to real economic value. Moving commodity regulations to Sebi shows the real focus. Sebi, as we have understood, will focus on controls in the sense standards are maintained in commodities trading.
At present, metal users in India can hedge their risk only to match deliveries as contracts are available for a few months only. However, if someone wants to lock today’s price for two years then there are no long-term products available to them. Small and medium enterprises active on Indian exchan-ges don’t have techniques available to large players. Why should they be deprived? These are the areas where LME’s expertise can be of use.
Do you see possibilities of expanding the tie-up with MCX or any Indian exchange?
MCX at present uses LME prices for settlements. However, their contracts are cash-settled. LME also handles physical deliveries and has its own warehouses. MCX doesn’t have an operational clearing house, and needs to set one up. We have recently set up one of the world’s best clearing houses and our expertise can be made available to MCX or Indian exchanges. Our warehouse receipts solutions can also be a prominent product for the Indian market as we have gained experience in that area. We are also looking at setting up an LME warehouse in a free trade zone as we have some experience in that.
Commodity prices, including metals, have seen a sharp fall in recent times. How has that impacted LME?
It is interesting to note that most markets are at 5-6 year lows. Mine closures, production cuts... when economic growth slows, trading comes down. However, our volumes have fallen only three per cent last year as we keep introducing new products, bringing new participants and so on. For the next six months I am conscious of growth.
Which products are you planning to introduce?
We are planning to launch products in the precious metals segment. In London, precious metals are traded largely in the over-the-counter market. We are talking to various players to have different structures for precious metals. We hope in the next few months reach a decision.
In ferrous segments we will be launching in November steel scrap and rebar cash settled contracts and physically settled billets contracts. We received approval for accepting the Chinese currency as collateral. We plan to accept metal bonds or warrants as collateral. Aluminium is a commodity where premiums for physical delivery play an important role and we plan to launch four regional premium contracts.
LME is owned by the Hong Kong stock exchange. Will that link help you as you look for opportunities in Chinese markets?
The Hong Kong exchange is also very keen to play a part in liberalisation of the Chinese markets and we are looking at commodity derivatives there as well, subject to regulatory approvals. There are three commodity exchanges in China and we could consider establishing stronger links with them.
What is your impression of the future of commodities derivatives based on your discussions with governments and regulators?
We had some discussions with government officials and the Reserve Bank of India and tomorrow we are meeting the commodity market’s new regulator, the Securities and Exchange Board of India. I can share with you my impressions based on our discussions. There is a concern to see Indian businesses remain glob-ally competitive. They are not negative on Indian companies hedging or trading more on foreign markets so far as it adds to real economic value. Moving commodity regulations to Sebi shows the real focus. Sebi, as we have understood, will focus on controls in the sense standards are maintained in commodities trading.
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What value can LME add to India’s commodities derivatives?
At present, metal users in India can hedge their risk only to match deliveries as contracts are available for a few months only. However, if someone wants to lock today’s price for two years then there are no long-term products available to them. Small and medium enterprises active on Indian exchan-ges don’t have techniques available to large players. Why should they be deprived? These are the areas where LME’s expertise can be of use.
Do you see possibilities of expanding the tie-up with MCX or any Indian exchange?
MCX at present uses LME prices for settlements. However, their contracts are cash-settled. LME also handles physical deliveries and has its own warehouses. MCX doesn’t have an operational clearing house, and needs to set one up. We have recently set up one of the world’s best clearing houses and our expertise can be made available to MCX or Indian exchanges. Our warehouse receipts solutions can also be a prominent product for the Indian market as we have gained experience in that area. We are also looking at setting up an LME warehouse in a free trade zone as we have some experience in that.
Commodity prices, including metals, have seen a sharp fall in recent times. How has that impacted LME?
It is interesting to note that most markets are at 5-6 year lows. Mine closures, production cuts... when economic growth slows, trading comes down. However, our volumes have fallen only three per cent last year as we keep introducing new products, bringing new participants and so on. For the next six months I am conscious of growth.
Which products are you planning to introduce?
We are planning to launch products in the precious metals segment. In London, precious metals are traded largely in the over-the-counter market. We are talking to various players to have different structures for precious metals. We hope in the next few months reach a decision.
In ferrous segments we will be launching in November steel scrap and rebar cash settled contracts and physically settled billets contracts. We received approval for accepting the Chinese currency as collateral. We plan to accept metal bonds or warrants as collateral. Aluminium is a commodity where premiums for physical delivery play an important role and we plan to launch four regional premium contracts.
LME is owned by the Hong Kong stock exchange. Will that link help you as you look for opportunities in Chinese markets?
The Hong Kong exchange is also very keen to play a part in liberalisation of the Chinese markets and we are looking at commodity derivatives there as well, subject to regulatory approvals. There are three commodity exchanges in China and we could consider establishing stronger links with them.