Last year represented the first full year in which London Metal Exchange was under the Hong Kong Exchanges & Clearing umbrella. Now the exchange is looking forward to expanding through new products, users and via its relatively new clearing house, LME Clear.
The LME battled some major commodity headwinds in 2015, with metals prices falling anywhere from 25- to 45 percent, and many firms pulling out of the market due to risk concerns, mine closures and various mining and banking staff reductions. LME’s volumes dipped 4.3 percent in 2015 to 169 million, down from 177 million a year earlier.
“Against that background, we ended up doing pretty well,” said LME CEO Garry Jones, who spoke with JLN at the FIA Boca conference. “We changed our pricing schedule to a more commercial level, fully in-sourced all the technology, and had a full year of LME Clear. “
Having the clearing house as part of its operation has been huge for LME’s revenues. Jones said that for every $100 it earns in trading revenue, it earns another $43 in clearing revenues.
“So for the business as a whole, this pays for further investment in what we’re doing,” he said. “We’ve upgraded the foundation of the exchange and now we must look forward. And that means really two things: extending the client base into different kinds of users and extending the types of products. And then thirdly, extending geographically with a major focus on Asia.”
In terms of clearing and products, LME Clear plans to begin clearing flexible OTC contracts and expanding beyond its core of base metals contracts into precious metals, ferrous metals such as steel, transportation and other so-called adjacent markets.
And like many other exchanges, LME is looking to offer more capital efficiencies. In LME Clear’s case, they are offering customers the choice to use metal warrants as collateral as well as compression services, to reduce offsetting positions in the marketplace. It also has begun taking renminbi as collateral, the first market to do so, Jones said.
This combined strategy is designed to work well with the parent company, Hong Kong Exchanges & Clearing’s efforts to serve as a key player in China’s markets.
“China represents 40 percent of the production and global consumption, so obviously that is an area of interest to us,” Jones said. “Our Chinese members, their increasing business year over year, is the highest of any group. So we’re very positive about that.”