MB SURVEY RESULTS: Market wants new LME ceo to focus on fees, members
The next London Metal Exchange ceo will need to focus on reviewing trading fees and repairing the exchange’s relationship with its members, according to a market survey conducted by Metal Bulletin.
Garry Jones retired from the position on January 23 due to issues with compliance oversight, a decline in business and cooling relations with its core members, Metal Bulletin reported earlier.
Matthew Chamberlain was appointed acting ceo while parent company Hong Kong Exchanges and Clearing Ltd (HKEX) looks for a suitable successor.
Fee review top of the agenda
More than half of the industry members who participated in the survey said a fee review should be top on the agenda amid growing discontent among key market users.
It is a debate that has been raging ever since fees were increased at the start of 2015. Many participants attributed the rise in trading costs as a leading reason for the decline in business on the exchange.
Aluminium volumes traded on the LME have seen a notable decline – it hit a low of 3.9 million lots in August 2016, having been at more than 6.6 million lots in June 2014.
Carry business on the exchange, again in particular for aluminium, has been one of the hardest hit.
In August last year, following discussions with the market, the LME announced a fee reduction on short-dated business. Still, respondents said more needs to be done to turn around falling business.
“Cut the fees on monthly carries out to seven month and leave them for the longer length carries,” one polled participant said.
Boost relationship with members
Building bridges with the exchange’s members, fighting back on competition and making warehousing attractive again all tied for second place in the survey.
The backdrop of falling volumes and what some of the industry saw as a focus on electronic trading and monthly contracts, has rankled some category I and II members.
Business has been migrating to other exchanges, such as the CME, which has posted an increase in business and volume in 2016.
And, such was the frustration with some LME members, that ex-LME ceo Martin Abbott announced in June last year that he had been approached to set up a rival platform.
“If the industry does not feel well treated, they will leave. If they leave, the reason for the LME will cease to exist,” one survey respondent said.
Greater communication between the exchange and the trade also featured in responses. Additional committees were suggested to allow participants to meet once a month to “thrash out problems and potential issues”.
Meetings, suggested another, should include all market stakeholders – including significant traders and not just LME members.
Alternatively, the exchange could bring in consultants who are “active” in the market now, to look at the exchange as a whole, said another.
‘Move with the times’
The LME’s market structure will also be high on the agenda for Chamberlain at a board meeting later this month. It comes at a time when those that propose reform and those that advocate the status quo debate how best to encourage larger volumes on to the exchange.
Called into question is the LME’s unique prompt date structure which some argue is outdated, while others countered that it reflected the physical nature of the exchange.
Several respondents requested that the LME remembered its “physical roots”, with one stating that the exchange only existed due to its service to industrial users.
Others said the exchange needs to move with the times or face getting left behind.
“The fear of losing old allegiances should never compromise the opportunity to form new ones. The LME has an opportunity to re-invent itself under new leadership, and this can be done successfully without losing its identity,” one respondent said.
“Should the LME revert back to older policies and look to satisfy members’ wishes over the desired interests of the rest of the evolving trading community, the exchange will inevitably be left behind as competing exchanges continue to drive volumes and liquidity from electronic participants,” the respondent added.
Warehouse issues were also at the top of the agenda. Since 2013, the exchange has implanted a range of stringent measures in a bid to stem long wait times at its registered sheds.
Queues have seen a dramatic reversal – metal booked for removal for aluminium is at 581,925 tonnes, against more than two million tonnes in 2013.
But, while the wait time has evaporated, so too has stocks held on the exchange. This has reduced availability and increased volatility on the front curve, with an increase in the size and frequency of backwardation.
In particular, queue based rent caps (QBRC) came under fire from survey respondents, as this rule change was seen the toughest measure.
The usual suspects
What the survey does show, however, is that while many agreed on what the top priorities are, the outcome and direction varied significantly.
This highlights the challenges ahead for the new ceo who will not be able to appease everyone.
When it came to who the market wanted to see as the next ceo, Matt Chamberlain received the most votes.
Unsurprisingly, the vast majority of the names that followed are “metals men” with the usual suspects’ names frequently appearing: Fabian Sommerville-Cotton (md of ADM Investor Services), Martin Abbott (ex-LME ceo), Martin Pratt (ceo Triland) and Nigel Dentoom (ceo of CCBI Metdist).
In terms of who the market expected to see as the new ceo, Matt Chamberlain was again the firm favourite.