Shanghai Futures Exchange (SHFE) and Hong Kong Exchanges and Clearing Limited (HKEx)will jointly look into the possibility of developing an Asian energy derivatives market under a Memorandum of Understanding (MOU) signed on April 11 by Jiang Yang, chief executive officer of SHFE and Charles Lee, chairman of HKEx.

SHFE and HKEx will consider establishing and operating a joint venture enterprise based on international market standards that offers a series of benchmark energy derivative products designed to serve both Chinese and international investors under a single market.

The exchanges will set up a joint working group with representatives from SHFE and HKEx to develop a business model and mark out a joint venture structure to facilitate the possible introduction of crude oil futures contracts.

The exchanges will now begin discussions with market participants on the optimal terms for the proposed energy derivatives market and potential market demand, particularly the interests of Asian investors. If a sufficiently attractive business case can be developed, approval for the market and its products will be sought from the two markets’ respective governmental and regulatory authorities. It is most likely that the first product introduced would be crude oil futures contract.

Mr Jiang of SHFE said, "This is the first time that a Mainland futures exchange explores substantive cooperation relationship with exchanges outside Mainland and also a new initiative for the cooperation between Shanghai and Hong Kong. By this cooperation, SHFE and HKEx can bring into full play the respective advantages and realise a win-win outcome to the mutual benefits. SHFE can also accelerate its step in the process of internationalisation."

Mr Lee of HKEx described the collaboration with SHFE as another important step in HKEx’s strategic plan to become the Asian hub of the global financial markets. He said, "We expect this collaboration will be beneficial to both exchanges, our market participants and shareholders. This proposed joint venture would broaden our customer base, diversify our product range and provide additional value-added services to customers across a broader geographical area. Ultimately, the proposal should contribute to the long-term business growth of both markets."