GOLD 0.51% $1,391.7 gold futures

Sergeant, I agree that the SGE will draw local business. It...

  1. 7,423 Posts.
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    Sergeant,

    I agree that the SGE will draw local business. It makes sense as the contracts are denominated in Yuan.

    But to be a genuine global threat to CME and LBMA, SGE will have to draw business from market users who predominantly use the US dollar as their accounting currency. If they try to do "global" business on SGC, they introduce currency translation risk, and whole bunch of additional counter party risk associated with the need to settle Yuan with Chinese local banks. It is very messy, and I don't see a value proposition to compensate for all this additional risk.

    It is interesting that Singapore (SGX) has denominated their (yet to be launched) gold trading product in US dollars. This makes it much easier for traders to integrate these trades into their global books. (I'm not so sure that Singapore will be that successful either. MAS is still obsessed with Nick Leeson, and the collateral costs are likely to make the product uncompetitive. I haven't looked at what HK is doing.)

    Cheers.
 
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