(Updated to include additional comment)
London 06/06/2016 – A significant number of base metals brokers are believed to be in talks with Martin Abbott, former CEO of the LME, to review the possibility of launching an alternative trading platform to the London Metal Exchange (LME), well-informed sources said.
To date, the project has received the backing of several members – some of which are high-profile LME Category One members – with several others in the pipeline.
“There have been lots of conversations, some of them I have been in, some I haven’t, but we have created a study group and now invite people to see if indeed there is sufficient appetite,” Abbott said.
The move comes amid growing frustration of the higher costs of trading on the LME, which members have publically stated is making it increasingly tough to do business.
The backers are in advanced talks and will now discuss if they will proceed and if members would want to fund a feasibility study.
This could see the return of a re-mutualised exchange to the metal market – one that would be funded and backed by the metal community.
The growing cost of doing business on the LME has prompted – some members would argue ‘forced’ – firms to alter their business models. Some have pulled back from metals; others are looking at other exchanges.
“There is certainly more dissatisfaction with the LME and its fee structure and general attitude than I can ever recall. Much of this is focused solely on the fee structure, which is forcing members to pass on many more if not all of the costs to clients,” Malcolm Freeman at Kingdom Futures said.
“Added to this the cost of credit due to regulatory capital requirements/cost of capital and it seems to many clients that alternatives to the LME will have to be sought,” he added.
The draft plan would be to set up a platform that offers both electronically and telephone trading on a low-fee basis to encourage business. It will also be modelled on the current LME prompt date structure, putting it in direct competition with the LME, enabling users to hedge accurately their transactions down to the day. Operating systems and clearing options are also being discussed
The new platform would be designed with EU guidelines such as Mifid in mind.
Abbott was CEO of the LME for seven years – he was at the helm when the privately owned exchange was sold to HKEX in the latter part of 2012 for 1.388 billion pounds before stepping down in September 2013. He is currently a non-executive director for several well-known companies including Mitsui and Ambrian.
He was replaced by incumbent Garry Jones, formerly CEO of NYSE LIFFE and group executive vice president and head of global derivatives for NYSE Euronext.
(Additional reporting by Martin Hayes, editing by Mark Shaw)