Hong Kong Exchange to buy the London Metal Exchange

I just got an alert from the WSJ that the Hong Kong Exchange just reached a deal to buy the LME, the largest PM exchange in the world.

Sorry can't post a link since WSJ is subscription based.

Just thought what people's opinion of this would be.

 

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Not sure what to think of it at this time. The deal is not set to finalize until sometime in July. I do doubt they will but the British Govt can still squash it. I wonder what if any the CME's, the losing bidder, plans are?

 

Here's a non subscription link (incomplete):
http://online.wsj.com/article/SB10001424052702303734204577467912492917718.html?mod=djemalertNEWS

This is not quite what I have been anticipating as the alternative for the Pan Asia Gold Exchange that never reached fruition. Hopefully this will promote market competition, but without more details I'm not sure what to think about this since I don't know the impact, whether it will provide physical metal contracts to China, whether it will be a 1:1 paper to physical ratio, etc.

 

If they want to make the maximum money, they will run it like the CME. The CME doesn't make their money from physical contracts, but by selling the "options" in both directions, Long and Short on contracts. If they balance it, they will have a continuing money flow from such operations. They would also change the margin rates as required to eliminate their risk if the physical metal had a significant rise or drop. If I was china, and wanted to buy say 50,000 oz of gold, I would buy outright unless I was manipulating world events and had a reasonable idea if gold would play a fear factor or less of one. Once I had the gold, I could write options depending on which way I felt gold was going , and keep the income as well as the gold at the end of the period. So the HKME seems to be balancing their world exposure by wanting to acquire the LME, as they probably see a profitable market with the European unrest as well as possible "fear scenarios" in the middle East. I am sure they will utilize China extensively, but I think they will make more income off of Europe. IMO.
Jim