CME, ICE, others bid for LME


Yellow Jacket
Reaction score
Some interesting news out of London:
Runners and riders in London Metal Exchange bid play
Preliminary bids for the London Metal Exchange (LME), the world's largest industrial metals market place, are due this week with a previously estimated price tag of more than 1 billion pounds in doubt due to a row over a fee hike.
Bidders will include CME Group, the InterContinental Exchange and a consortium of the London Stock Exchange and Singapore Exchange (SGX), three industry sources have said.
UK-based broker ICAP and Deutsche Boerse-owned Eurex are also potential suitors.
Analysts and industry sources have valued the exchange at between 500 million pounds and 1.5 billion pounds ($783.4 million-2.4 billion) based on expectations of higher earnings boosted by new products and by self clearing.
The higher valuation will also help it borrow money at better rates, an industry source said. "It will be no longer the poor man's exchange," the source said.
In November, JP Morgan paid almost 25 million pounds for a 4.7 percent stake in the LME held by defunct broker MF Global Holdings :snidely: , sources familiar with the matter have said, which implies a total value for the exchange at around 530 million pounds.
The price works out at 41.67 pounds per share, a premium of nearly ninefold from the a traded price of LME ordinary shares, 4.925 pounds, in July.
Market sources have said any bid would probably have to be at least 1 billion pounds because 800 million pounds was reportedly offered for the company in 2008.
The LME denies there was an approach or a bid. "It did not happen, there was no bid, approach or conversation," an LME spokesman said.
A billion pound offer works out to around 70 pounds a share.
But a dispute over LME plans to raise revenues with a new fee could mean potential bidders for the exchange will trim their offers because any revision could dent projected extra revenue included in its valuation, industry sources said.
The LME operates on a constrained-profit model, and has so far kept fees low for the trading houses and banks that own the exchange and use the market.
That would have to change, UBS analyst Alex Kramm said.
"If you want to be bought by a public exchange, you can't operate on a cost-recovery model any more," Kramm said. "Certainly something needs to be done there."
The LME's pre-tax profit in 2010, limited by the low fees, fell 28 percent to 12.5 million pounds, according to figures on the LME website.
Below is a rundown of some of the possible bidders:
ICE Chief Executive Jeffrey Sprecher said last month he is looking at potential acquisitions to grab a bigger share of the clearing business, and that the LME could add value to his company.
"It seems very much like an ICE kind of deal," Kramm said. "ICE has a history of doing transactions that are a little bit more complex."
The LME has announced plans to build its own clearing business.
The U.S.-based exchange and clearing house posted better than expected quarterly results this month.
The combination of the main European energy market with the main European metals venue makes some sense and would create a strong Europe-based commodities exchange group at a time that Asian markets look set to dwarf their European rivals.
A merger would give the Chicago-based company the platform in Europe it has long wanted and would make some sense for both parties. CME is looking to build its European clearing business. CME could move the LME to its own technology, which would generate savings for clients.
CME already has a locally licensed clearing body - CME Clearing in Europe - through which it can post trades.
CME already trades copper, steel, gold and other precious metals contracts, so there are synergies plus the potential for offsetting margins across other asset classes.
"For the CME, certainly they have ambitions in Europe, but I think if you look at the CME acquisitions historically...they've done the deals that were easy or and not the ones that were complex," Kramm said.
A source with direct knowledge of the matter told Reuters in September the SGX would tie up with the LSE to make a joint bid for the LME.
The joint bid underscores the ambitions of both exchanges to diversify into the fast-growing space of metals trading, as traditional businesses of equity and derivatives trading faces increasing competition.
Both the SGX and the LSE are coming off failed merger attempts amid a flurry of exchange auctions that were prompted by loss of market share across the industry to alternative trading venues.
SGX, led by experienced dealmaker Magnus Bocker, has been trying to raise the profile of Asia's second-largest listed bourse and compete against its larger rival, the Hong Kong Mercantile Exchange.
His attempts to buy ASX Ltd was rejected by the Australian government last year. The LSE too had to face defeat in its pursuit of the Toronto Stock Exchange after a consortium of Canadian banks launched a counter offer.
A bid for the LME fits with the LSE plan to diversify into futures.
A tie up with Deutsche Boerse's Eurex could drive cost savings by moving the LME onto its technology and also has a clearing house, Eurex Clearing, which could prove valuable to LME. The deal would take Eurex into commodities and give the LME a powerful owner, which would be useful as the LME looks outside of Europe.
Deutsche Boerse could put the disappointment of a failed merger deal with NYSE Euronext behind it by turning its attention to European exchanges and clearing assets.
ICAP has expertise in commodities as the largest broker in the market and looks to have the necessary deep pockets to afford the exchange. It would also keep the LME in British hands.

First of all LME is NOT LBMA and they don't trade precious metals, but here is what they do:
Market data and post-trade services for the precious metals market
In partnership with the London Bullion Market Association (LBMA) and LCH.Clearnet, the LME provides members of the gold and silver bullion community with new services to enhance market transparency and reduce counterparty risk.
LME helps the LBMA to produce forward curve rates and LCH.Clearnet to clear over-the-counter (OTC) gold transactions.
The LME helps the LMBA provide users of the silver OTC market

In essence, this means: If the CME ended up buying the LME they would have even more power of price discovery in the gold and silver markets. :doodoo:
How is it that regulators are even allowing discussions to be held over this deal?!?!?

To further concentrate trading in precious metals is to further cover up market rigging, plain and simple. How exactly is it possible that the very banks who do the most trading are permitted to own even a single share of the clearing houses charged with providing what little transparency they still provide? How is it possible for our regulators to even consider allowing CME Group, who is entirely responsible for the massive ass raping of MF Global cash and metals account holders, to purchase an even bigger clearing house?

What the fuck Captain?
It doesn't matter if they do buy out JPM, the fact remains that the CME will become so big that it will be impossible to properly audit them. Just look at MFG for 'cryin out loud. We're months down the road, yet none of the money has been properly clawed back from JPM or any of the other evil bastards who really and truly stole it in the first place by demanding collateral from a company they knew from the inside was going to fail. What happens when these cocksuckers, in collusion with CME [remember, JPM is on the inside of a house that clears all their dirty deals] become owners of the worlds largest metals exchange?

Yeah, i don't even have to actually say it do I.
Hong Kong's stock exchange operator said Friday it has agreed to buy the 135-year-old London Metal Exchange for 1.4 billion pounds ($2.2 billion) as it shifts into commodities to capitalize on Chinese demand.

Hong Kong Exchanges and Clearing Ltd. said it has signed an agreement with the LME, the world's largest metals market, to pay 107.60 pounds for each of its 12.9 million shares. The LME's board plans to recommend shareholders accept the offer at a meeting expected before the end of July.

The Hong Kong bourse's offer follows plans announced earlier this year to expand into commodities, marking a major move away from its slow-growing equities business.

Hong Kong Exchanges said the LME has yet to "realize fully the growth opportunity" in Asia, especially China, and the deal would provide a platform for "significant revenue growth" as LME expands its business and operations in the region.

The exchange has "identified particular demand for commodities trading, focused around metals, to support the large and growing metals consumption in Asia, and particularly, China," it said in a statement.


Whoa. That came out of left field. I didn't know that Hong Kong was even in play here. Interesting development.
Saw this ( HK buys LME) last night PMB and assumed it was all expected /common knowledge.

Whats the significance ?

We going to see market forces run free in PM's ?
Follow up from FT via GATA:
The prospective buyer of the London Metal Exchange has warned that it will clamp down on the lucrative metal warehousing business that has attracted investments from Goldman Sachs and Glencore.

Hong Kong Exchanges & Clearing, which on Friday announced an agreement to buy the 135-year-old group for L1.4 billion, said it was planning to change the rules governing the LME's network of warehouses in an attempt to shorten the wait to take delivery of metal.

Long queues to remove aluminium from LME warehouses have sparked angry confrontations between consumers of metal, such as Coca-Cola, PepsiCo, and General Motors, and warehouse owners, including Goldman, JPMorgan, Glencore, and Trafigura.

Banks and trading houses have rushed to buy warehousing companies to profit from the fact that large quantities of metal have become surplus to requirements since the financial crisis. But now that the metal is needed, consumers say, it can take more than a year to be delivered.

The problem is most acute at warehouses owned by Glencore in the Netherlands and Goldman in Detroit. The premium to buy a cargo of aluminium for immediate delivery has soared to record highs as a result, in spite of large stocks, consumers say.

Charles Li, chief executive of HKEx, told the Financial Times that warehousing was a "very challenging issue." The LME's responses to date -- which include increasing the rate at which the largest warehouses must deliver metal -- "generally speaking fit the problem," he said.

Martin Abbott, chief executive of the LME, has in the past attributed the problem to logistical challenges in removing metal from warehouses and low interest rates that make it easy to finance inventories.

"It is no longer just a simple logistic challenge issue. ... There are behaviour issues. We need to look at the rules, what behaviour they encourage and what behaviour they discourage," Mr Li said. In a later statement clarifying his views, he added: "Our position is no different from the current LME position."

HKEx's bid must still pass a vote of the LME's shareholders, of which the largest are JPMorgan and Goldman Sachs.

Warehouse companies earn a fee while they hold metal, even if it has not left because of queues. Consumers and some traders have complained that because queues guarantee a future revenue stream, producers are being persuaded to store their metal.

"As long as warehouses continue to offer incentives to attract metal that is guaranteed to stay in storage for prolonged periods, less metal is available for actual usage," said Nick Madden, chief procurement officer at Novelis, the top buyer of aluminium.

The LME said: "We are constantly monitoring the way that LME warehousing functions and will take action when appropriate."

Simon Collins, head of dry bulk commodities at Trafigura, the second-largest metals trader, said: "We would welcome a review by HKEx of LME rules on warehousing and delivery."

The dispute, along with a disagreement about raising trading fees, has caused many LME shareholders to lose faith in its management structure. Half the board is made up of banks and brokers, including Goldman.

Numerous investors say concerns about governance are one reason LME shareholders are likely to vote for a sale.

Goldman sandbagging clients for profit. Play it again Sam.
Top Bottom