Scotiabank brings Shanghai the Year of the Golden Derivatives

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Scotiabank Unit Joins Shanghai Gold Exchange

By John Partridge
The Globe and Mail, Toronto
Monday, June 9, 2008

http://www.theglobeandmail.com/servlet/story/RTGAM.20080609.wscotiachina...

Bank of Nova Scotia's precious metals trading unit, ScotiaMocatta -- which has lasted longer than China's final imperial dynasty -- has been granted membership in the Shanghai Gold Exchange.

The bank said Monday the membership will allow ScotiaMocatta's branch in Guangzhou to trade gold, silver, and platinum for customers that have precious metals requirements in China, as well as on the firm's account.

Barry Wainstein, global head of foreign exchange and precious metals at the bank, said ScotiaMocatta's China business has been "quite limited" until now. This is because the firm has had to conduct it out of Hong Kong and has been restricted to dealing with only those Chinese entities that have received the "requisite government approvals" to deal outside the country.

"We think China is potentially one of the biggest markets for bullion in the world, and being a member of the Shanghai Gold Exchange just gives us a footing with which to serve this market," Mr. Wainstein said in a telephone interview.

In 2007, which, auspiciously was celebrated as the Year of the Golden Pig, consumer demand for gold in China soared to 326 tonnes, up 26 per cent from 2006, according to the World Gold Council. As well, 302 tonnes of this was in the form of jewellery, allowing the giant Asian nation to surpass the United States for the first time as the second largest market for gold trinkets after India, the perennial No. 1.

As well, for the first time ever, China last year surpassed South Africa as the world's largest gold producer, and this should also provide ScotiaMocatta with significant opportunities in the mining sector, he said.

The China Gold Association said earlier this year that the country's gold production rose to 270.3 tonnes in 2007, up 12.7 per cent from the previous year, while South Africa's mines produced 254 tonnes, down 7.4 per cent.

Scotia said in a news release that this is the first time a foreign bank branch has been allowed to join the SGE, where silver and platinum also are traded.

The significance is that China's central bank, which set up the SGE in 2001, has required other foreign banks that wanted to join to do so through separately capitalized, locally incorporated subsidiaries.

News reports out of China last month said the exchange had approved as members both Standard Chartered Bank (China) Ltd. and HSBC China Co., the locally incorporated subsidiaries of Britain's Standard Chartered PLC and HSBC Holdings PLC, respectively.

ScotiaMocatta, which Scotiabank took over in 1997, dates back to 1671.

As it happens, that is a longer pedigree than China's last imperial dynasty, the Qing Dynasty. It began 27 years before ScotiaMocatta, in 1644, but ended in 1912.

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