Coal Miner Turns Dealmaker at London Metal Exchange: Commodities

London Metal Exchange CEO Martin Abbott
London Metal Exchange Chief Executive Officer Martin Abbott. Photographer: Simon Dawson/Bloomberg

Martin Abbott has been a fashion journalist, advertising salesman, pub manager, security guard and coal miner. The chief executive officer of the London Metal Exchange, the biggest metals market, may soon be a dealmaker.

More than a century after being founded above a hat shop in London’s financial district, the bourse is considering ending its independence after record trading volumes attracted multiple bidders. The exchange, which handles about 80 percent of global trade in metals futures, may be valued at $1.3 billion, according to Diego Perfumo, an exchanges analyst at Equity Research Desk, a hedge-fund adviser in Greenwich, Connecticut.

The LME, which is owned by its members including Goldman Sachs Group Inc., Barclays Plc and Citigroup Inc., handled $15.4 trillion of contracts last year and set today as a deadline for offers. While more than $37 billion of exchange mergers failed last year because of populist outcry, antitrust concern and volatile markets, the biggest challenge facing a bidder for the LME may be its owners.

“We didn’t put ourselves up for sale and we’re not trying to be sold,” Abbott, 51, said in an interview Feb. 8 at his office on Leadenhall Street, where the only view is the exchange’s trading floor. “We can’t stop people coming and offering us money. We have an obligation to show those bids to the shareholders, but that doesn’t mean that we’re for sale.”

Bull Market

The LME has operated independently since it started trading tin and copper in 1877, later adding other non-ferrous metals such as aluminum, nickel, zinc and lead, minor metals including cobalt and steel contracts. Since Abbott’s appointment in 2006, the volume of transactions increased 69 percent and their combined value advanced 90 percent, as a decade-long bull market in commodities accelerated. The LME index of aluminum, zinc, copper, tin, lead and zinc has climbed 10 percent this year.

Abbott achieved that while retaining London’s last so-called open outcry trading floor, a 6-meter-wide (20-foot) trading pit that handled about 20 percent of transactions in 2010. Its origins are in the Jerusalem Coffee House in the financial district where metals traders would meet in the early 19th century. Merchants would draw a circle in the sawdust around which people could make bids.

The exchange maintained the practice even as London bourses from the International Petroleum Exchange, taken over by IntercontinentalExchange Inc., and the London International Financial Futures and Options Exchange, acquired by Euronext NV, closed their trading pits in the past two decades. Of the LME’s 93 members, 12 have the right to trade on the floor. Brokers also trade through the bourse’s Select electronic platform and by phone.


Bidders for the exchange may include Deutsche Boerse AG, NYSE Euronext Inc., IntercontinentalExchange, CME Group Inc. and Hong Kong Exchanges and Clearing Ltd., according to Perfumo of Equity Research Desk. Officials from the companies declined to comment. NYSE Euronext and Deutsche Boerse’s plan to create the world’s biggest exchange was blocked by regulators on Feb. 1 because it would hurt competition.

CME, based in Chicago, acquired the New York Mercantile Exchange for $7.6 billion in 2008, and Atlanta-based ICE bought the New York Board of Trade in 2007 for $1.79 billion, data compiled by Bloomberg show. Singapore Exchange’s A$8.3 billion ($8.9 billion) offer to buy ASX Ltd., the owner of Australia’s main bourse, was blocked by the Australian government in April.

ICE Futures handled 381.1 million futures and options last year, CME’s trading was 3.4 billion contracts and a record 146.6 million lots changed hands on the LME.

“The LME is like the last man standing,” said Thomas McMahon, a former CEO of the Singapore Mercantile Exchange and president, deputy chairman of the Hong Kong Mercantile Exchange, who has known Abbott since the 1990s. “If you go back to all the amalgamations of early 2000s, the LME is the last one out there. It’s got plenty of room to grow.”

Coal Pit

Abbott became CEO in 2006 after a career that took him from running a pub when he finished a law degree at Leicester University in central England to a decade-long stay in Connecticut that ended with him becoming president of AMM LLC, a publisher of information on the metals industry. Jobs as a student included working at an opencast coal pit near the northern English city of Leeds.

“Probably he wasn’t the traditional sort of candidate,” said David Brooks, Abbott’s successor at AMM in New York. “He still surprised a lot of people. He had the insider’s experience with the outsider’s perspective.”

Metal Bulletin

While a three-month stint as a security guard in 1982 took him to Leadenhall Street, where the LME would move to 12 years later, it wasn’t until 1984 that he had his first sight of the trading ring. On his first day as a reporter at Metal Bulletin, a news and data service, he was sent to the bourse in Fenchurch Street, about a 10-minute walk from the Bank of England.

“It pressed all the right buttons,” Abbott said. “It was a complete mystery what was going on but it was quite clear that what was going on was exciting, international, it involved lots of money, lots of customers, lots of countries.”

He had joined Metal Bulletin from Drapers Record, a fashion magazine where he worked as an advertising salesman and then as a reporter. The pay was so low that in the final months he had to walk to work from his single room in Notting Hill. He now lives in Putney, southwest London, and commutes into work by train to arrive for 7:30 a.m., except two days a week when he takes his 16-month-old daughter to nursery.

Poetry remains his passion, even after he was thwarted from pursuing a masters degree in the subject because of education cuts in the early 1980s. His taste in poetry now ranges from Sylvia Plath, with a collection of her works on his bedside table, to Leonard Cohen, “one of the greatest poets of the last 100 years.”

Aluminum-Alloy Contract

Abbott has sought to expand the exchange’s business through new products, including so-called mini-contracts in copper, zinc and aluminum in Singapore a year ago to take advantage of Asian demand. As director of marketing at the LME for three years through 1993, he designed its aluminum-alloy contract.

Not all the innovations worked as planned. The LME withdrew its plastics contracts in April, six years after they were introduced, because of a lack of trading. The Far East and Mediterranean steel contracts were merged in 2010.

The CEO is now trying to increase revenue from trading fees to fund a new clearing house that will claw back business from LCH.Clearnet Group Ltd. and increase the exchange’s value. The bourse has traditionally kept those fees low, generating net income of 9.5 million pounds ($14.9 million) in 2010 as $11.6 trillion of contracts changed hands, according to a filing with Companies House. The exchange has yet to report its profit for 2011, when the value of trading increased about 33 percent.

Fee Resistance

There is resistance to the higher fees, with three directors writing to members last month opposing it. A meeting was held in London on Feb. 7 to explain the changes and the board will review them on Feb. 23. Shareholders may get to vote on bids as early as April, Abbott said in an interview in September. Of the bourse’s 93 members, 66 hold the class of share that entitles them to a say in the takeover. The exchange needs 75 percent of shareholders to approve a takeover.

Abbott recognized the growing importance of Asia in the metals markets, opening the LME’s first overseas office in Singapore in 2010. He has just come back from meeting Chinese brokers and regulators and travels to Japan this month to host a reception at the British ambassador’s residence in Tokyo.

“We all get very excited, quite rightly so, about the importance of China, the rise of China,” Abbott said. “But it’s really important to remember that actually Japan is still one of the world’s biggest economies and the Japanese industry is a major player in the LME.”

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