LME’s Edge Seen by Metdist’s Bagri Threatened If Changes

The London Metal Exchange is in danger of losing its competitive edge if it changes the way it operates, according to Apurv Bagri, chief executive officer of Metdist Group, a closely held company that gained 130 million pounds ($210 million) from the bourse’s sale.

The LME, founded in 1877, accounts for more than 80 percent of trading in industrial metals futures. The exchange was bought by Hong Kong Exchanges & Clearing Ltd. in 2012 for $2.2 billion and Metdist was the third-largest shareholder.

While contracts on most exchanges including IntercontinentalExchange Inc. and CME Group are settled on a monthly basis, the LME operates a system of daily prompt dates and users may deliver physical metal against their futures positions.

“If over time this market is reshaped into an American-style exchange, then the very barriers that have prevented competition will disintegrate and lead to the erosion of our dominant position,” Bagri said yesterday at the LME dinner in London. “If we give up or dilute our historic links to the physical trading community, then our uniqueness will disappear and the ability to create value will be dissipated.”

Challenges faced include rising costs of doing business, regulation and alternative trading platforms, he said. “It is price convergence that has made and ensures that our exchange remains the global dominant market for industrial users.”

‘Pure Exposure’

The LME last year handled 171.1 million futures and options contracts in aluminum to tin worth $14.6 trillion. Most open interest, or the number of outstanding futures, is concentrated around the third Wednesday of each month, according to data compiled by Bloomberg. The exchange plans to boost trading of monthly contracts to increase options turnover and offer access to those traders who want “pure exposure” to metals, LME CEO Garry Jones said in an interview today.

The bourse is raising charges, adding new products and opened its own clearinghouse in September. It’s raising trading and clearing fees on average 34 percent next year, it said last month. The magnitude of the increases is still being digested by users, Bagri said.

“I would strongly caution our new owners, I would caution them that in their journey to monetize their investment, do not destroy the golden goose,” he said.

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