CGSE 金銀業貿易場
Corporate Structure
Executive and Supervisory Committees
Inception of the Chinese Gold and Silver Exchange Society (“CGSE”) dates back to 1910 when we began to operate as the “Gold and Silver Exchange Company”. In 1918, CGSE formally registered in the name of the Chinese Gold and Silver Exchange Society. Since then, the home-grown exchange has developed and expanded continuously. After years of development, CGSE becomes a thriving metal exchange with solid foundation and strong tradition.

CGSE was established in wake of the thriving development of Hong Kong’s banking industry. In the formative years, CGSE was led by Hong Kong’s early local bankers, including, among others, Mr. Ho Sin Hang, Mr. Ho Tim, Mr. Wu Kit Yee, Mr. Leung Kwai Yee, Mr. Tung Chung Wei and Mr. Ma Kam Chan. Ninety four years ago - around the post-WWI era, trading of gold and silver fragments was a popular business. Then "cash counter" emerged. Money merchants gradually developed their trades by setting up "Yin Hao" (literally means Chinese private banks) which later transformed into modernized banks. Against this backdrop, CGSE was an outgrowth of the money industry in Hong Kong. In addition to its principal business in trading of gold silver, CGSE also concurrently engaged in dealing of 89 fine gold, silver dollar in pre-WWII time, and US Dollar, Japanese Yen, Vietnamese Dong, Filipino Peso and Mexican gold nugget in post-WWII time. In 1960, CGSE faced a delivery problem in trading of US Dollar, which halted the trading of currency from time to time. Trading of US Dollar was brought to a formal close in 1962 because of inactive trading. Thereafter, CGSE only dealt in gold and silver.

For more than one hundred years, CGSE has adhered to a stringent and effective set of rules. Although constantly tested, the integrity of industry members is always upheld, and they play a vital role in Hong Kong's gold market. CGSE provides local and international investors with a gold market of continuity, liquidity and depth, in which they can use gold as an instrument of investment, speculation, hedging and arbitrage.

Except for a break precipitated by the Pacific War (1941-1945), CGSE provides continual services to investors on every trading day. In January 1980 when the Soviet army invaded Afghanistan, the price of gold soared to a record high of HK$4,855.00 per tael on 18 January, before plunging to a low of HK$3,590.00 on 23 January, marking a sharp volatility of $1,200.00 in only a few days. Unable to cope with this severe fluctuation, all major gold markets suspended trading. Thanks to our swift response to emergence and the sound market system, CGSE was the only market in the world where trading continued as usual.

In early February of 1983, plummeting oil prices, tightening of the US Federal Reserve's monetary policy and rising rates made the price of gold highly volatile, ultimately leading to suspension of gold trading in the US and Singapore markets. In spite of this, CGSE remained open, demonstrating its ability and credibility to ensure continuity in trading.

Investors cashed out their gold bullion and closed out gold positions smoothly and swiftly over the past few decades. Not a single complaint has been received. On 15 January 1970, CGSE abandoned the then prevailing 945 fineness and adopted 99 fineness as the standard for pure gold - a move to cater for the demands of gold jewelry industry. At that time, Hong Kong people had more than 100,000 taels of 945 fineness gold, and CGSE bought them all for a price based on the 99 fineness standards. Consumers got the full value of their gold investments, and no dispute arose. This episode of history best exemplifies our Members' integrity and the abundant liquidity of CGSE.

While CGSE is subject to the ups and downs in trading due to fluctuating gold prices, the sheer strength we display in market strong runs is impressive. In the early 1980's, the gold market staged stellar performance and more than 2 million taels of gold were traded on CGSE daily. This shows that our Member firms can cope well with large trade volumes in a bullish market.

Since the British occupation of Hong Kong in nineteenth century, there was no restriction on import and export, and trading of gold. The situation changed in 1939 when Hong Kong formally joined the Sterling Area and was subject to foreign exchange control and restriction was imposed on the import and export of gold. In post-war times of Word World II, gold was transported to Hong Kong in a special manner. Gold shipped to Hong Kong from overseas was first trans-shipped to Wong On Street, Macau, by some franchise companies formed by a consortium of foreign trading houses, and the gold was then brought back to the city by private individuals through different channels. This indirect shipment method was abandoned after the Hong Kong Government revoked all restrictions on the import and export of gold on January 1, 1974.

Upon the implementation of new policy, gold merchants resumed their businesses to ship and deal in gold directly, which brought enormous advantages to enhancement of Hong Kong's status as an international financial centre. In fact, a lot of London and Swiss gold merchants came to the city to set up offices, with a view to expanding their businesses. The year 1974 marked a watershed for development of gold industry: in a couple of years, the import and export, trans-shipment of gold and business of CGSE experienced a tremendous growth, which culminated in early 1980'.

Having established itself a key player in the international gold market, Hong Kong owed its success to a number of factors, including, among others, political stability, free trade, respect for private ownership, well-entrenched legal system, high degree of accessibility and ease of transportation, advanced communications networks and telecommunications facilities, robust financial infrastructure and stringent regulatory system. Yet another important factor worth noting is that Hong Kong spans across the Asia time zone, offering price information for the gold market after the close of New York market and before the opening of the London market. Because of this connection, international investors can continue their trading, hedging or arbitrage activities in Hong Kong. Effectively, the emerging of Hong Kong gold market turns the trading of gold around-the-clock.

CGSE and the Hong Kong Government have been maintaining a mutually respectful and cooperative relationship for long. The latter adopted a positive non-interventionist policy towards development of commercial activity, and the former implements a system of self-discipline to regulate the behaviors of its Members. For the past few decades, there has been very little disputes; and harmonious relationships were maintained among CGSE, its Members and investors. Should disputes arise, various parties could resort to negotiation to resolve them. For years, both the Government officials and the community as a whole praised CGSE's for its accomplishment to maintain well-managed self-discipline system. Based on this fine tradition, CGSE cannot afford to be complacent and will continue to strive for greater progress. The exchange will continue to maintain a close link with the Financial Bureau and the Financial Services and the Treasury Bureau. It will also seek the Government's view on any potential major reform before implementation.

CGSE is a metal exchange which combines both spot and futures contracts. In addition to delivery of physical metals, the trading parties can offer to pay premium to defer the contract delivery, thereby performing the function of futures market. This unique trading mechanism is the brainchild which the dedicated founders of CGSE who put enormous efforts and resources to create some years ago. This trading mechanism has stood the test of time and operated smoothly and effectively in the past and it is just as long lasting as gold.

There are two kinds of purity for gold contracts traded on CGSE: 99% purity of Tael Bar (5-tael ), 99.99% purity of Tael Bar (5-tael) (HK Dollar 9999 Gold) and 99.99% purity of Gold Bar (1-kilogram each)(HK Dollar Kilobar/Renminbi Kilobar). All trading of gold is denominated and settled in accordance with the currency and the unit stipulated in contracts. To facilitate the trading by international investors, CGSE provide metal contracts denominated in HK Dollar, USD and RMB.

CGSE implements trading through an open outcry method which is still in use in most of the major futures markets. Member firms or their floor traders (dealers) call out bid and ask prices in Cantonese in the trading hall and their calls are supplemented with hand signals. CGSE opens for trading between Morning to Friday, with the morning session running between 9:00 a.m. to 12:00 noon, and the afternoon session running between 2:00 p.m. to 5:00 p.m.. When a deal is done, the seller must complete a trading note within 15 minutes and hand it to the buyer for confirmation. Thereafter, the trading note will be submitted to the Settlement Department of CGSE for the purpose of transaction registration. To achieve effective risk management, CGSE will update the records of trading members' deposit and outstanding positions. At the end of a trading session, CGSE will carry out intermediary settlement of all transactions, and forward the settlement result to a designated settlement bank. Prices are determined, for the purpose of settlement, at both morning and afternoon sessions. The determination of settlement prices is based on prevailing market prices. For 99 Tael Bar, it is rounded up to the nearest five dollars. For Kilobar, it is rounded up to the nearest 5 cents.

All Members of CGSE need to reconcile their contract prices with settlement prices, book the differences in their respective accounts, and settle any gain/loss with CGSE. To facilitate settlement, all Members taking part in trading must open an account at the same designated bank.

CGSE is a market that combines spot and futures trading. CGSE runs a spot-based trading system under which Members shall abide by same-day delivery for contract transaction. However, CGSE has a premium mechanism to assist the trading parties to defer delivery on T+1, or even to defer the delivery indefinitely until the positions are closed out. Premium is determined openly in the market at 11:00 a.m. for 99 Tael Bar and 11:15 a.m. for Kilobar. At such times, Members wishing to settle spot gold can register their deals on board; the premium of the day is determined by reference to the supply of and demand for physical gold.

Premium is determined by the supply of and demand for spot gold. If the demand for spot gold outstrips the supply of it, buyers are entitled to receive premium as compensation from sellers who ask to defer the delivery of gold. In other words, sellers (short position holders) pay premium to buyers (long position holders). In industry jargon, this is called “high interest” or “plus premium”. By the same token, if supply of spot gold outstrips the demand for it, it means a greater demand for cashing-out. Those buyers who ask to defer delivery of gold will pay premium to sellers. It is a scenario of “low interest” or “low premium”. If the amount of gold confirmed for delivery is equal to the amount of gold confirmed for receipt, and both sellers and buyers come to an agreement, premium will be determined. In a scenario that neither the buyers nor the sellers pay premium, it is called “flat interest”.

CGSE manages risks through two measures. The first is the implementation of margin system and another risk management measure is "Discount Circuit Breaker". Thanks to these two systems, CGSE managed to survive and prosper in the past few gold market crises.

In 2008, CGSE launched "Electronic Trading Platform" and "Transaction Code". Thereafter, "Gold and Silver Market Certificate" , "Practitioners' Registration System" and "Liquidity Providers" were introduced in subsequent years as part of the plan to modernize, systematize and internationalize CGSE. Moving into the new millennium, CGSE has taken a more proactive approach on product development with a view to catering for growing market demands. Tremendous efforts have been spent, which resulted in the roll-out of "RMB Kiloar", the world's first offshore RMB-denominated and settled gold product; and "Premium 1-Tael 9999 Gold Bar" and "Premium 5-Tael 9999 Gold Bar" which are tailored for retail market buyers. Later on, "HK Dollar 9999 Gold Contract" and "Loco Silver 1 Contract" were launched to drive the trading volume of local spot gold and silver.

In recent years, CGSE also introduced a series of diversified services for its Members. CGSE newly established "Hong Kong Precious Metals Assay Centre" to offer assay services to its Members, extend its services to precious metals manufacturers and jewelry industry. "Hong Kong Precious Metals Assay Centre" was accredited under Hong Kong Laboratory Accreditation Scheme (HOKLAS) by Hong Kong Accreditation Service (HKAS). In the coming years, CGSE will continue to provide reliable and premier services to serve precious metals industry, and strive to make its share of contribution to consolidate and enhance Hong Kong's status as an international financial center.

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CGSE 金銀業貿易場
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