CME Planning Aluminum Contract to Compete With LME

CME Group Inc. (CME), the world’s largest futures exchange, plans an aluminum futures contract in a direct challenge to the London Metal Exchange.

“The market really wants an alternative,” Harriet Hunnable, CME’s managing director of metals, said in London today. “The aluminum market is a large one and needs a new futures contract. It’s a market that today appreciates price transparency. We can deliver that and good liquidity.”

The new contract will be physically delivered, Hunnable said, declining to give a start date for the product.

Chicago-based CME, which is also starting a derivatives exchange in London, is going after LME’s business after failing to buy the largest industrial-metals futures market. The warehouse network monitored by the LME is coming under increasing regulatory scrutiny after MillerCoors LLC, Encore Wire Corp. (WIRE) and other users said delays in getting metals were distorting prices.

The LME was bought by Hong Kong Exchanges & Clearing Ltd. last year for $2.2 billion and the 136-year-old exchange counts Goldman Sachs Group Inc. and JPMorgan Chase & Co. among its members. CME’s London exchange will also compete with Deutsche Boerse AG (DB1)’s Eurex and NYSE Euronext (NYX)’s Liffe, the largest derivatives venues in Europe. It was founded in the 19th century and has a business that spans agricultural, energy, metal and financial futures.

CME Europe is starting with currency derivatives in the region as it seeks to attract volume. Interest-rate futures are CME’s biggest business.

Hunnable declined to comment on whether the new exchange, which has been delayed twice, will consider first trading commodities when it opens rather than foreign exchange.

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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