Commodities merchant ED&F Man is applying to become the London Metal Exchange's first new floor trading member in more than 10 years, industry and trade sources said on Friday. "We don't comment, and the LME also doesn't comment on future members," Christian Bouet of ED&F Man's commodities trading arm said.
The London Metal Exchange does not discuss possible applications and a spokeswoman declined to comment, but traders on the floor of the market said the firm's entry was imminent and that other companies might follow. "We were unofficially told that they were coming to the floor, creating a team," one LME floor trader said.
ED&F Man is thought to be hiring a team of floor traders also known as ring dealers and as such able to participate in the open outcry trading sessions who resigned from Natexis Commodity Markets in late April.
"There was never any doubt ED&F would be on the floor," a senior industry source said on condition of anonymity. "These people they hired, it would be only natural for them to be employed on the floor," he said, adding that other firms were seeking membership as floor traders.
ED&F Man would be the first new entrant to the LME ring for more than 10 years, which would mark a turnaround in the fortunes of London's last open outcry trading floor. Ring trading has been criticised as costly and inefficient, with some fund managers new to the metals markets questioning the usefulness of the traders who conduct business face-to-face in the frantic atmosphere of the floor, rather than electronically.
"It's a specialised market. A lot of the complicated stuff is done by open outcry, while the simple outright trading has naturally migrated to electronic trading platforms," a senior official at another ring dealing member said. Adding a metals trading division, particularly one with a ring trading capability, would also boost a commodities merchant's profile, he said.
"In the present climate of M&A and IPOs, the investment community looks quite favourably at companies with a full spread of operations," he said. Another experienced trader said swelling the ranks of ring dealers would reflect well on the LME's leadership. "It would be good for the ring, and it would be good for (Chief Executive Martin) Abbott, he'd be the first chief executive to bring in a new ring dealer for years," he said.
Several banks and trading firms have joined the exchange in recent years as metals prices have risen and commodities have become more common in investment portfolios, but so far new members have not taken seats on the floor. "The question is, have ED&F been able to buy the requisite number of shares?" the first senior industry source said, referring to the Class B shares in the LME that prospective members need to buy in order to trade.
After a lull between January and May, two tranches of 12,500 shares were sold at 60 pounds per share on May 4, according to the J.P. Morgan Cazenove contributory page on Reuters screens. Another 5,000 sold for the same price on May 16, and a bid was made for 25,000 shares enough to gain trading rights on May 21, though there was no matching offer.
On Thursday bids were open for more than 35,000 shares, and three tranches of around 1,800 shares sold at 60 pounds. "B" shares are a second class of share made available by the LME last year to allow easier access to the market, without conferring any stake in the ownership of the exchange.
ED&F Man, which trades sugar, coffee, cocoa, rubber, ethanol and other agricultural products, is a private company owned by its employees. Until a management buy-out in 2000 it was part of Man Group. Man Financial, the brokerage division of Man Group, is one of 11 firms currently trading on the floor.
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