January 12, 2012 / 9:24 AM / 8 years ago

UPDATE 3-LME CEO firm on fee hike, sale opposition hardens

* LME CEO says has several serious potential bidders

* Fee hike a board decision, no plan for revision

* Angry shareholders launch campaign

By Susan Thomas and Maytaal Angel

LONDON, Jan 12 (Reuters) - London Metal Exchange (LME) CEO Martin Abbott held firm on a decision to hike trading fees that has hardened members’ opposition to the potential sale of the world’s top metals marketplace.

High-level members of the 130-year-old exchange say that the trading fee hike announced last month is window dressing to enhance the LME’s attractiveness for potential suitors by steeply raising revenues.

Some are so angered they have launched a campaign to rally members to voice their opinions on an issue they say will hurt their way of doing business.

But Abbott said the move was aimed at boosting revenues needed to update technology, raise capital to meet expected regulatory requirements and to take on increasing competition.

“The decision was taken by the board by a large majority. There is no provision for a revision of that decision,” he told a news conference.

“We’ll listen, but there is currently no anticipation that the decision will be reviewed. Authority for setting the fees sits squarely with the board.”

The LME would have raised fees regardless of any possible sale, he said.

The new exchange user fee amounts to 50 pence per lot per side for each purchase or sale contract for a client.

According to Reuters’ calculations based on information from the LME’s website, fees for non-segregated trades, the most common form of transaction on the exchange, would rise more than 1,000 percent.

LME members are already concerned that a new owner could hike fees at a time when their margins are being squeezed by an economic slowdown and a move to more electronic trade.

“Business models will have to be reviewed,” an executive at a ring-dealing member said. “Serious and senior people in the market are fuming.”

In a letter seen by Reuters, three of the LME’s 12 directors urged members to voice their opinions on the fee hike, and asked the LME to set aside the decision “until such time as members have had an opportunity to vote on its future”.

Abbott said the rare public dispute was “unusual” but was “not entirely a bolt from the blue”.

“Whenever we announce anything that is taking us into a new area, we get visceral reaction from a certain section,” he said.

The LME has already attracted several serious potential bidders, Abbott said, and takeover proposals will be considered at its board meeting on Feb. 23, he said. A source told Reuters that 15 suitors had expressed interest.


The exchange received initial takeover approaches in September and has been sending out detailed financial data to suitors in recent weeks.

Metal industry sources have said the LME, which accounts for 80 percent of global futures activity in industrial metals, could be worth as much as 1 billion pounds ($1.5 billion).

Potential buyers may include CME Group Inc, IntercontinentalExchange and UK-based broker ICAP , analysts and industry sources have said.

Singapore Exchange, the Hong Kong Mercantile Exchange, the London Stock Exchange, and Deutsche Boerse-owned Eurex have also been mentioned.

If there was a winning bid for the LME it would not be on price alone, Abbott said. “It will be on price and empathy with the business model.”

But analysts have said that any buyer would probably want to change the LME’s business model, which has constrained profits to help keep members’ costs down.

Shareholders will have to vote on any takeover, and the fee hike has given them a taste of what could come.

As a member-owned organisation, the exchange requires approval from members holding 75 percent of outstanding ordinary or “A” shares for any sale.

Industry sources have said top bank stakeholders are likely to amass enough support to block a sale they fear will bring a more heavily regulated owner and hurt their lucrative warehousing businesses.

Those banks could find support among disgruntled members.

“Nobody likes an increase in costs, and I would think that I would put myself in the camp that is disappointed that this is the route that the exchange is going down,” said an executive at a top LME member said.

“I think that some people have expressed their disapproval of the process, and I gather that some of the banks have voiced their frustration about this because it’s a meaningful number.”

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