Although the LME has been cautious about its chances, state-owned local media had reported that the exchange would be allowed to authorize commodity warehouses in the free-trade zone, while warehousing facilities did not appear on a list of banned activities.

Bringing the centuries-old bourse to China was one of the major rationales the Hong Kong stock exchange gave last year for its $2.2 billion acquisition of the LME. Warehouses on the mainland would allow the world’s biggest marketplace for industrial metals such as copper and aluminium direct access to the top consumer of those metals.

“Foreign exchanges will not be allowed to have warehouses in the free-trade zone. The current ban will stand,” said the source with direct knowledge of the policy.

The ban was issued by the China Securities and Regulatory Commission (CSRC) in 2008.

Although the Shanghai government in its draft proposal sought to have the LME open storage facilities in the zone, the source said the idea ran into strong opposition from the securities regulator. (Reuters)