Asia’s long held desire to develop a commodities exchange to rival London, New York or Chicago has hit the buffers with the credit crunch. As the power house of commodities consumption it would seem obvious to many, particularly in Asia, that the region should have it’s own hub trading not just metals but oil and agricultural goods too. Indeed though Europe’s metals market was developing in the coffee shops of London, Japan had the first commodity exchange trading rice in 1697 in Osaka. Since then Japan has developed a well respected but limited commodity exchange TOCOM in Tokyo but it has always had too much of a retail focus and lacks the liquidity to attract the large investors.
Kuala Lumpur in Malaysia has enjoyed a place in the physical trade of tin via their Penang exchange though Hong Kong and Singapore both have active stock markets with aspirations to develop metals exchanges. The Hong Kong Mercantile Exchange HKMex has had plans to start oil trading from early 2009 and metals later in the year, hoping its well regulated markets and long established position as a hub for physical traders combined with its position between China and the rest of the world will give them an advantage over their main rival Singapore.
Financial Technologies India which already operates India’s Multi Commodities Exchange and is co owner of Dubai’s Gold and Commodities Exchange has plans to launch a Singapore Mercantile Exchange SMX to trade futures and options in base and precious metals, energy and agricultural products. Largely because of its position as a major refining center, Singapore already has a thriving over the counter oil trading market and hopes its solid banking regulation and infrastructure will draw the traders necessary to operate such a market. Mumbai too has an active metals market and both Dubai and China’s Shanghai Futures Exchange have ambitions to become global players, although the SHFE will always remain limited since it is closed to foreigners.
However, with volumes dropping and extreme volatility increasing, the chances of a new exchange getting off the ground in 2009 look increasingly slim. Even the largest futures exchange in the world, the Chicago Mercantile Exchange owners of both Nymex and the Chicago Board of Trade CBOT, is not interested in any further expansion. As part owners of the Dubai Mercantile Exchange, the CME is possibly better positioned than anyone to leverage its massive technological advantage and financial strength to develop Dubai as a metals trading market. But for the time being, the CME is focused on absorbing the recent Nymex and CBOT mergers in the midst of the chaos of the current futures markets. With minor and major players facing weekly margin calls and broker-client relationships stretching back decades yet crumbling in a fragile financial environment, no-one believes a new exchange has any hope of survival. It looks like Asia’s dream of a market to rival the big three is yet another victim of the credit crisis.