GF Futures makes Chinese LME membership a trend – Sucden

More than a year after Bank of China International (BOCI) joined the London Metal Exchange, the bourse is set to register its second Chinese member after GF Futures acquired the Natixis Commodity Markets (NCM) business this week for $36.1 million.

More than a year after Bank of China International (BOCI) joined the London Metal Exchange, the bourse is set to register its second Chinese member after GF Futures acquired the Natixis Commodity Markets (NCM) business this week for $36.1 million.

Progress has been slower than some had expected, but over the next few years more Chinese members will join the LME, either by building new businesses – like BOCI – or acquiring them, like GF Futures, Jeremy Goldwyn, Sucden Financial’s head of business development in Asia, said.

“There may only be two points on the graph right now, but I think this is definitely the start of the trend,” Goldwyn told Metal Bulletin on Tuesday August 6.

As other banks and brokerages register, there will be stratification in the types of business they offer, as some entities look to set up pure brokers and dealers while others move into other areas, such as structured finance and physical markets, Goldwyn said.

The Industrial and Commercial Bank of China (ICBC), which is rumoured to be making an offer for Standard Bank’s London-based commodities business, may be the first Chinese entity to follow the latter strategy.

“Eventually there will be more than two or three Chinese members, and they’ll each have their own appetites and expectations. Some of them will only be interested in clients that will bring in $1 million a year, while others will be looking to take on the smaller opportunities. Some will want to do physical trading, structured finance and offtakes while others will want to pursue a more traditional brokerage model,” Goldwyn said.

GF Futures, which will trade on the LME as GF Financial Markets (UK) Ltd, has not yet announced what its ambitions for the company are.

The London-based business will be headed by former NCM md Andy Gooch, who stayed on with the company after the French bank’s trading team was disbanded and the book was closed around mid 2012.

GF Futures was involved in discussions to buy NCM last year, but the parties failed to agree on a deal to acquire the full business, market sources said.

“Partly, I think it was an issue with timing. If Natixis hadn’t been in such a rush to sell, or GF had been able to move more quickly, then they would have taken the team and the book on as well,” one observer said.

LME uncertainty
The sale of NCM, which had a large ring-dealing team, was also complicated by the uncertainty over the long-term future of the LME floor following Hong Kong Exchange and Clearing’s bid for the bourse, sources said at the time.

As it joined as a category II member early last year, BOCI Global Commodities ceo Arthur Fan said the company had no immediate plans to build a floor-dealing team.

But the possibility that a Chinese entity will trade on the floor should not be ruled out, Goldwyn told Metal Bulletin.

“BOCI wanted to become the first Chinese member of the exchange, but it’s not unrealistic to think that another entity might want to become the first Chinese ring-dealer.”

In the meantime, there are opportunities for existing ring dealers such as Sucden to capitalise on the kudos that a category I membership still carries in the Asian market, he said.

“I’m certainly as excited about the next three years as I have been about the previous three. I haven’t been completely convinced about the opportunities for inbound access to domestic exchanges, but the opportunities to develop outbound business are very healthy, and that’s certainly what I’ve been focused on these past few years,” he said.

Mark Burton 
mburton@metalbulletin.com
Twitter: @mburtonmb

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