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HKEx won’t be warehousing walkover

Keywords: Tags  LME, HKEx, Charles Li, warehousing, Goldman Sachs, JPMorgan Chase, Andrea Hotter,

NEW YORK — Hong Kong Exchanges & Clearing Ltd. will get tough with warehousing companies that it finds to be acting against the rules of the London Metal Exchange, or even outside of the spirit of the rules, its chief executive officer said.

The "conspiracy theory" that the LME protects the vested interests of exchange-approved warehouses and their owners should gradually vanish now that HKEx has taken over, Charles Li told AMM in an exclusive interview in Hong Kong.

"Whatever the perception of the market of the LME’s existing board or management or regulatory infrastructure, those views shouldn’t be with us anymore, as HKEx has no reason to favor anybody—we only care about the market," he said. "When we come to a view on warehousing, I think the conspiracy theory will hopefully disappear, because no single group will be able to exert a greater level of influence over us than another."

The storage of metal has been a controversial subject for the past two years, with the debate pitting warehousing firms owned by Glencore International Plc, Goldman Sachs Group Inc. and JPMorgan Chase & Co. against household names like Coca-Cola Co.

The contention centers on ownership and delays in getting access to metal.

Li said he didn’t believe openly bad behavior was being tolerated or encouraged, but added that big players at multiple points of the value chain will have advantages. "And those advantages are sometimes being used within the confines of regulatory restrictions, and sometimes (the rules are) probably being breached somewhere else," he said.

"If they are breached and not being penalized, that’s the LME’s problem. But I don’t think that is the case, and I don’t think that’s even the criticism," Li said. "The criticism is that somehow the system is allowing them to do this, and I have yet to get people to articulate to me exactly where this has happened."

Li said this was "very uncomfortable territory" for HKEx.

"You don’t know whether it’s not a problem at all, or whether it’s something that nobody has any idea of how to deal with it," he added.

But HKEx is now "psychologically over those concerns," Li said.

"The reason we eventually proceeded with the transaction was the progressively deeper understanding of the issue—we came to a point that we think firstly that the system is clearly not broken, no matter what people are saying; and No. 2, there are no easy solutions or answers because there’s not even an easy consensus as to what the problem was," he said.

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