Finance and Economics；The London Metal Exchange；Metal cashing；Who wants to buy the LME?
The sight of a pack of adults shouting at each other is rarely edifying. Unless, that is, the set-to is in the “ring” of the London Metal Exchange (LME), whose old-fashioned system of open-outcry trading does much to set global prices for industrial metals and which is now itself the subject of a bidding battle. Only Hong Kong Exchanges and Clearing had publicly said that it would submit an offer for the world’s leading metals exchange by this week’s deadline of May 7th, but CME Group, InterContinental Exchange and NYSE Euronext are also widely reported to be in the frame.
The member-owned LME, which started business 135 years ago in premises above a hat shop in the City of London, resolved last year to see what it might be worth to globalising rivals. As one of the world’s few remaining member-owned exchanges it is an inviting target, even at an estimated price of 1 billion Euro(1.6 billion dollar). Acquiring it would give all the likely suitors a bigger global footprint, important for any ambitious exchange group, and a ready-made business in non-ferrous metals, demand for which has rocketed on the back of China’s rise.
But the bidders have a tricky balancing-act to pull off. To satisfy their own shareholders, they must seek out the ample opportunities to boost profits at the LME by shifting to centralised clearing, cutting costs, raising fees and introducing more electronic trading at the expense of open outcry. But this is unlikely to appeal to the LME’s members, which include some of the world’s biggest banks (JPMorgan Chase is its largest shareholder). The exchange makes meagre returns precisely because it has kept fees so low.
The LME may decide to carry on alone if a potential bidder cannot reassure its members over the changes they would introduce. But competition is hotting up. The Shanghai Futures Exchange, set up in 1999, traded around 300m contracts last year, twice as many as the LME, even if those in London are typically far bigger. The Hong Kong Mercantile Exchange is also set to launch a copper contract soon. Teaming up with a bigger exchange, which will bring more liquidity and some fresh thinking, is an idea worth shouting about.