London Metal Exchange: what’s next for the new lord of the ring?

When investment banker Matthew Chamberlain was advising on the historic sale of the London Metal Exchange five years ago, he had no idea that by the age of 34 he’d become its boss.

“That was not on the radar,” the former UBS banker says from the LME’s new headquarters in Moorgate – its fourth base since it was created in 1877 above a hat shop in Lombard Street.

“As a mergers and acquisitions banker if you just stay in M&A you never see the result of the deal that you work on. Most of my 2012 had been learning about this place – things that I’m doing today are things that I first read about when [Hong Kong Exchanges & Clearing] was looking at buying this company.”

The £1.4bn sale to HKEX, one of the largest exchanges in the world, was a landmark moment for the 140-year-old London institution.

LME
LME traders must always ensure one heel is touching the seat from which they trade from CREDIT: BLOOMBERG

The LME trades most of the world’s metals via the “ring” – the last trading pit in Europe in which traders shout out bids and offers, barking numbers for the sale of metals such as copper, tin, zinc and aluminium while having to keep their heels on the red leather sofa arranged around the circle.

But life has not been easy since the LME fell in to HKEX’s hands.

A rise in trading fees two years ago caused trading volumes to slip 4.3pc in 2015 and 7.7pc last year as frustrated members moved elsewhere.

Tradition isn’t always a positive thing, people often want to modernise. But there’s a huge loyalty and bond between the exchange and its members

Chamberlain’s rise to the top of the exchange also happened at lightning speed – this time a year ago he was head of business development, but the abrupt departure of the company’s chief operating officer and head of strategy followed by the sudden exit of chief executive Garry Jones weeks later meant that by April he was catapulted into the top job.

Now faced with the daunting task of turning things around, does the former banker still think the takeover he helped create has been a success?

“The simple answer is yes, the acquisition has worked,” Chamberlain says, adding that the process has been complicated by the fact the exchange was previously member owned.

“A number of issues we [HKEX] inherited had been bubbling along for some time. Some of the questions on balancing tradition and modernity had been active for many years, but it was only once owned by HKEX that they really came to the fore.”

Eager to start off on the right foot, Chamberlain launched a discussion paper earlier this year to pinpoint exactly what the exchange could do to become more competitive and lure volumes back.

After two months of meetings with clients to discuss the proposals – aimed at drawing business back towards the LME – he has one more month to firm up a new strategy, having set himself a target date of early September.

A number of the measures being considered, and which will likely come up at an LME board meeting taking place this week, centre around costs.

They include reducing fees on so-called short-dated carries, a type of trade that brings expiring contracts forward, slashing costs for those trading on the ring and combining trading and clearing fees to make the process simpler for users.

“We have a commercial interest on making sure the fee structure is fair and proportionate [so we’ve said] to the market – tell us where the fees work for you and where they don’t, and we’ll see what we can do,” Chamberlain said, adding that the challenge is getting the balance right when different corners of the market have contrasting opinions on how the exchange should evolve.

“There are a whole bunch of issues where we need to hear the views of the market [before coming up with a new strategy].”

Stephen Fry
Stephen Fry has likened the LME to a bear pit CREDIT: PA

But winning back business isn’t just about bringing down fees – the exchange mirrored recent moves made by two of its US rivals, CME Group and the Intercontinental Exchange, earlier this month by launching new gold and silver contracts, and Chamberlain says he wants to make sure the group is ready for changing technology that could impact the demand for certain metals in the years ahead.

The increasing use of electronic cars, as an example, will see demand rocket for cobalt and lithium needed to make car batteries.

The exchange’s new strategy also needs to be as much about the old as it is about the new. As most other markets have moved to all-electronic models, it is a rare sight to watch the five-minute trading windows take place around the ring – dealers scream prices over each other, with clerks at the back yelling to clients with a phone to each ear.

Actor Stephen Fry, having visited the ring himself back in 2013, described the experience on Twitter as “like a bear pit”.

In this arena, ancient rules are unlikely to change under Chamberlain’s watch. Traders are still not allowed to chew gum, are expected to always keep their top button fastened, and can only remove their jackets in the summer if it’s really hot and they have permission from the ring manager.

“Tradition isn’t always a positive thing, people often want to modernise. But there’s a huge loyalty and bond between the exchange and its members, and I think a lot of that comes from the traditions of this place,” Chamberlain said.

“In a world of electronic exchanges, we maintain the floor as our core pricing venue, we try to stay close to the underlying market, we never forget that we’re here to service the needs of the metals community.”

 

source http://www.telegraph.co.uk/business/2017/07/30/london-metal-exchange-next-new-lord-ring/

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