The London Metal Exchange, facing falling trading volumes and tougher competition, plans to ask its members to evaluate wide-ranging reforms that are intensifying a robust internal debate over its future.
The 140-year institution is set to outline proposed reforms in the coming weeks, evaluating almost all aspects of its business, including whether it should become more similar to rivals such as the CME Group, the world’s largest futures exchange operator.
Bought by Hong Kong Exchanges and Clearing in 2012 for £1.4bn, the LME faces tougher competition from derivatives exchanges that list standard monthly futures contracts, which all expire on the same day of the month and are electronically transacted.
In contrast, the LME uses rolling three-month contracts that all expire on separate days, a structure that appeals to traders of physical metals, as they often prefer exact dates that allow them to hedge the price exposure of their shipments.
Opinion among LME members is currently divided almost equally for and against a reform of the exchange’s date structure.
Some members, who have seen a draft of the proposed reforms, told the FT that the document was too broad in scope and that an actual concrete plan of action could take months to materialise.
“It’s a sign of weakness,” a member said. “You [LME] don’t know what you want to do and you’re going go to ask everybody again and you’re going to get a bunch of views that you already have.”
Another member said: “There’s a desire to say we’re a new open LME, whereas previously they were pushing things through, but I’m not really sure what that does. In the end you need a good plan. They are going to have to make a decision.”
The release of the document comes amid speculation the LME is set to announce a new chief executive this month after the abrupt departure of Garry Jones in January.
The current frontrunner is the LME’s interim chief executive Matthew Chamberlain, who led the exchange through a complicated reform of its warehousing system over the past few years.
“We are committed to broad engagement with our stakeholders, to understand their perspectives, and to map out a development path for the LME which evolves together with the needs of our users,” LME said. “We will only make changes where and when we believe these to be in the best interests of the whole market.”