Infrastructure of the Shanghai Gold Exchange

China’s Shanghai Gold Exchange (SGE) employs an electronic trading platform offering physical trading of gold contracts where counterparties are required to have the full amount of gold and cash before trading, and also offering contract trading where only trading margin is required.

SGE gold product contracts that are traded and cleared on the Exchange form part of what is known as the SGE’s “Price Matching” market, However, the SGE also allows details of similar gold contracts that have been traded bilaterally off Exchange (i.e. traded Over-the-Counter between counterparties) to be entered into the SGE trading platform and then also cleared through the SGE’s clearing and vaulting system. This is known as the SGE’s “Price Inquiry” market and includes Chinese interbank gold trading activity.

The Chinese twice daily gold price auction, known as the Shanghai Gold Price Benchmark auction, is a distinct third component of price discovery in the Chinese gold market, in addition to the Exchange and OTC gold trading mentioned above. This gold price benchmark was launched in April 2016. Trading volumes of on-Exchange, off-Exchange and gold price benchmark auction trades are feed into the overall gold trading volume figures calculated and published by the SGE. Continue reading…

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