COMMENT: A robust week at the London Metal Exchange

“It’s not exactly a tea party.” This was how London Metal Exchange chief executive Martin Abbott characterised the uproar over the new fees on client contracts that the board approved late last year.

“It’s not exactly a tea party.” This was how London Metal Exchange chief executive Martin Abbott characterised the uproar over the new fees on client contracts that the board approved late last year.

The new fees will come into effect in March and will see the levy on a typical segregated trade rise by about 66%, to a level of about $1.30 per lot.

Regulatory capital requirements; the cost of developing the exchange and ensuring its competitiveness; funding for LMEClear, the LME’s clearing house project; and the need to ensure that shareholding members and potential bidders fully appreciate the value of the exchange have combined to make the fee necessary, Abbott argues.

He rejected the proposition that the fees were solely related to a potential bid, though. In a hypothetical scenario in which no bidders were interested in the exchange the fees would still have been likely to rise, he told journalists last week.

The exchange’s board and executive are working on the assumption that it will not be sold, he added.
In part this is prudence.

But it is also in tune with a growing sense that a block of shareholders whose businesses function on the current fee and date structure could emerge to prevent any sale, which 75% of ordinary shareholders would have to accept.

LME members are both users and shareholders of the world’s largest metal market. (Abbott said that the LME estimated it captured 80% of the market for base metals futures last year.)

They do not like to feel as though they are being pushed around — particularly when they sense a threat to parts of their business.

Board directors that oppose the new fee have solicited their fellow shareholders, asking them to express their opinion on the matter, whether for or against, to LME chairman Sir Brian Bender.

Their view is that the LME works well as a market for shareholding members under the current fee structure, and generates sufficient income to pay dividends and meet its investment needs.

A revision of fees should be set aside till the membership has voted on any bid, they argue.

Abbott has experience of such struggles.

In September 2009 shareholders failed by a narrow margin to back Abbott and then-chairman Donald Brydon’s plans to overhaul the boards of the LME.

Their fear then? That shareholding practitioners’ grip on the exchange would diminish, that commercial projects for the exchange that were not in their best interest might gain traction, and that corporate governance might be diminished.

The following year, in October, the LME moved to relaunch its mini contracts on the Singapore Exchange. Members responded by attempting to reignite interest in the LME’s own minis, fearing that they would be disenfranchised if the minis took off in Singapore.

Abbott bears the scars of these experiences. But far from being deleterious, he argues, such robust debate and the developments that ensue show that robust decisions are being taken by the LME.

At the end of what one ring-dealer described as “a bloody awful week”, both sides of the row can take strength from the fact that robust debate and decisions are also the marks of a robust exchange.

Alex Harrison
aharrison@metalbulletin.com
Twitter: @alexharrison_mb

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
Proceed