(Reuters) - Tumbling volumes at the London Metal Exchange (LME) helped depress first half-profits at its parent, the Hong Kong bourse, but fee cuts on short-dated trades will hopefully boost trade in the second half, the bourse's head said on Wednesday.
Also, a new spot commodity platform on mainland China will begin testing in the fourth quarter, Charles Li, chief executive of Hong Kong Exchanges & Clearing Ltd's (HKEX) (HK:0388), told a results presentation.
HKEX second-quarter net profit slumped 38 percent as falling trading volumes pushed down fees for buying and selling shares and commodities contracts.
Contributing to the overall HKEX earnings decline, daily traded volumes on the LME shrunk by 9 percent in the first half due to difficult market conditions, HKEX said, and after higher fees discouraged trading on the metals bourse.
Last week, the LME said it will cut fees for short-dated trades from Sept. 1, in what sources say was an attempt to halt the slide in trading volumes since charges were raised across the board last year.
"And that hopefully ... (will) allow us to rejuvenate the trading volume in those areas," Li said.
SPOT TRADING PLATFORM
Volumes on the 139-year-old LME have been falling since trading fees rose an average 31 percent in January 2015. The average daily number of metals contracts traded on LME fell to 635,111 lots from 695,588 lots in the first half of last year.
Core first-half earnings of HKEX's commodity division - almost exclusively LME business - slumped by 19 percent to HK$513 million as trade in metals declined while hiring linked to a new spot commodities trading platform in China drove up costs.
Trading fees fell by 11 per cent due to the drop in daily average volumes, as well as the effect of incentive rebates introduced in the third quarter of 2015, it said.
Operating expenses jumped by 15 per cent, mostly due to hires for "strategic initiatives" such as HKEX's plan to roll out a spot commodities trading platform in Shenzhen.
"Our system development work (on the platform) is near completion and in about a month's time we should be in a position to begin testing user acceptance," Li said.
That is one of a series of initiatives HKEX has taken to boost its commodities business after the $2.2 billion takeover of the LME in 2012, which analysts said was at a high price.
The main rationale for paying a rich valuation was to boost business by drawing in more business from mainland China, the world's top industrial metals consumer, but this has proved more difficult than expected.
So far Chinese regulators have not allowed the LME to open warehouses in mainland China to store metal for use in settling its futures contracts, but talks were continuing, Li said.
"We are having longer and more complex discussions with regulators," he said.
The LME earnings crunch came as former LME chief executive Martin Abbott has raised the concept of a rival platform to the LME after being approached by restive brokers, unhappy with fee increases and an LME move to boost volumes by attracting more speculators.
The LME said this week it plans to launch spot and futures contracts for gold and silver in the first half of 2017.