HKEX hoped alchemy would turn acquisition of century-old London Metal Exchange into ‘super-connector’ gold. What went wrong?

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After March’s trading suspension, HKEX has started an internal review at LME. Separate reviews by the Financial Conduct Authority and the Bank of England have also been initiated

HKEX’s Nicolas Aguzin remains optimistic about LME and says the bourse remains ‘well positioned’ to benefit from its links with China

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Despite the challenges of overseas expansion, LME is expected to continue enjoying its status as the reference for global metal pricing, industry players say. Photo: AFP

Georgina Lee

Published: 11:00am, 14 Jun 2022Updated: 2:37pm, 14 Jun 2022

When Hong Kong Exchanges and Clearing (HKEX) acquired the 145-year-old London Metal Exchange (LME) in 2012, it was hoped that the Hong Kong bourse operator would extend its role as a “super-connector” and link China’s commodity markets with the world through the UK-based exchange.

Tens years later – as the London bourse embarks on a reputation rebuilding exercise after having to cancel trading for only the second time in its history in March – some are asking whether the £1.39 billion (US$1.7 billion) acquisition engineered by former HKEX chief executive Charles Li Xiaojia has achieved its intended purpose. The cancellation followed a surge in nickel prices that threatened to destabilise the market amid a short squeeze that triggered billions of dollars in margin calls.

The fiasco was triggered amid heightened geopolitical tensions and global inflationary pressures, as Russia’s invasion of Ukraine sparked global supply concerns and sent the price of nickel soaring.

In its aftermath, HKEX started an internal review at LME. Separate reviews by the Financial Conduct Authority and the Bank of England were also initiated.

Exchange Square, which houses the Hong Kong stock exchange, in the city’s Central district. HKEX’s acquisition of LME was intended to boost commodities trading in Hong Kong as part of China’s 12th five-year plan. Photo: AP

The acquisition of LME was intended to boost commodities trading in Hong Kong as part of China’s 12th five-year plan. Li also made it clear that the deal represented a major step towards diversifying the bourse’s business away from equities and HKEX becoming a “international bourse operator”.