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When I wrote a couple of weeks ago that the old guard at the LME was changing, I clearly knew only part of it.
Since then, when Martin Abbott and Chris Evans had announced their resignations, the exchange has also seen Diarmuid O’Hegarty and Liz Milan make their departures.
Stepping in through the swinging door is Garry Jones, appointed as the new ceo to succeed Abbott.
These changes draw a very different profile for the LME to present to both the world at large and its members. If one takes the statements made at the time of the takeover at face value – and I have no reason to doubt that one should – then such wholesale changes in the management of the exchange are not a part of a grand strategy; rather, they are simply a natural evolution in the development of the business. People come and go.
However, there is an opportunity here. Of late, the LME has garnered more column inches in the general press than I can remember (with the possible exceptions of Sumitomo and the Tin Crisis) and most of it has been less than complimentary.
There have been accusations of collusion with various parties over warehousing aluminium, and change at the top always helps in such circumstances. The comparison can (and probably will) be drawn between the old management, wringing their hands and claiming there is nothing they can do – it’s all the fault of particular economic circumstances – and the new, striding confidently in to take on the challenge. The fact that I largely subscribe to the former view is completely irrelevant here; a new broom always has the chance to sweep things away.
On the other hand, there are probably some issues where a greater degree of continuity might have been beneficial. At the moment, LME volumes are holding up remarkably well, according to the latest statistics. However, we know that certainly US banks, and probably some in Europe, will be constrained by regulation in their commodity trading activities. That will almost inevitably lead to a reduction of their LME volumes. If we add to that reduction the declining importance of the financing business that runs in parallel, it’s not too big a jump to expect the constant growth in trade of recent times to abate.
Now, I don’t believe that the broker fraternity is enjoying bumper profits at the moment, and their position will become worse if volumes decrease. Into that scenario will come the fee increases that are inevitable once the moratorium period ends. I can’t be the only one who thinks that the old management – with a shared history with the members – might have had an easier ride in smoothing that one over.
Where Hong Kong Exchanges and Clearing Ltd has probably scored well with a newcomer is the way he will be able to take a fresh, unbiased view of the structure of the exchange’s whole business model. With new eyes, the question of whether or not the Ring should survive can be considered without the baggage of history; likewise, whether or not the market should enter new asset classes – expanding away from its purely metal base. (Personally, I think anyone looking at that should consider the case of the plastics contract carefully before making decisions.)
So, where do we stand? Continuity has undoubtedly been lost, but at the same time there are clear advantages to bringing in new blood. I have a nagging suspicion that the owners may have preferred not to have to make this decision for a couple of years, but it wasn’t to be.
This column has always been a supporter – in overall terms, not always of all the specifics – of the LME, so I take the opportunity of welcoming Garry Jones and expressing the hope that his tenure will lead the exchange forward in the development of its business.
Lord Copper editorial@metalbulletin.com