A strategic review by the London Metal Exchange (LME) could result in the 129-year exchange being floated and, ultimately, closure of its traditional open-outcry floor.
"The LME is a unique product...if it is sold the shareholders will do very well," a former LME director said, speaking on condition of anonymity.
Opting for a review, which the LME board decided at a recent two-day meeting away from the exchange, takes place at a time when global commodities are in the midst of a bull market, with many metals prices at record highs.
The LME, which is privately owned by its top member firms, said it would look at the structure and strategy of the exchange, and prepare a plan to maximise its value.
"Going with a float will unlock the value of the exchange...I don't think there is another way to create value," a senior trader at a ring-dealing member (RDM) said.
The LME, the world's largest non-ferrous metals market, de-mutualised in 2000, with its members at the time taking up shares nominally valued at 10 pence each. It keeps fees as low as possible and looks to rebate surpluses to members.
"If they have one (IPO), I can see someone like ICE (Intercontinental Exchange) buying it and then going to the screen - it will be the death of the floor," a third trader said. Open-outcry trading is the LME's traditional method of transacting business, and since 1877 metals have been bought and sold in this way. The LME is the last exchange in Europe to retain a trading floor.
"I think they need to come up with something. Compared to the CBOTs (Chicago Board of Trade) of this world, the LME has stagnated," the third trader said.
Outside the 1045-1600 GMT open-outcry trading times, metals traders have been able to use an inter-office telephone market.
However, since 2001 the LME has offered an electronic trading system, known as Select, which is increasingly favoured by investment funds. Electronic trading is also preferred by market regulators, as audit trials are easier to follow.
"I don't necessarily see a float, merger or take-over leading to the floor closing. It's really for the market to decide," the second trader said.
Select currently trades between 0700-1900, London time, but from June 1, 2006, it will start at 0100.
LME shares are currently held by ring-dealing members (RDM), who trade on the open-outcry floor, and associate broker clearing members (ABCM), who cannot.
Many ABCMs are large investment brokers and banks, with no links to the traditional metals industry and will have few qualms about accepting an offer for shares.
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