Econintersect: The Chinese exchange operator, Hong Kong Exchanges and Clearing Limited, has bought the London Metals Exchange (LME). The LME is the world's largest market in options, and futures contracts on copper and other metals. The Hong Kong exchange is paying $2.2 billion, which beat the bid of Atlanta-based Intercontinental Exchange, which operates electronic marketplaces that trade in energy and commodity contracts. NYSE Euronext and CME Group dropped out of the competition months ago.
The Hong Kong Exchange eyed the purchase as a way to combat declining stock market activity, a condition which also afflicts NYSE Euronext and other stock exchange operators. The World Federation of Exchanges (WFE) says, statistically, that trading volumes in equities is down 17.9% for the year through the end of May. GEI News recently reported that volume was down 19% year-to-date through April, also according to WFE.
The LME is moving closer to the center of its business. China is the world's largest consumer of commodities such as copper and accounts for around 60% of LME trading volume.
The LME expects shareholders will approve the transaction before the end of July 2012. The transaction is expected to close during the fourth quarter of 2012, subject to FSA approval and all other relevant conditions. Reuters has said the shareholders “may well reject it.”
Hong Kong Exchanges and Clearing Chief Executive Charles Li, in a presentation for analysts, promised that HKEx will preserve the LME brand, the open-outcry and the structure until at least Jan. 1, 2015.
The LME has operated in London for 135 years.
Here are the key highlights of the transaction from the LME press release:
- Brings together the London Metal Exchange (“the LME”), the world’s leading2 non-ferrous base metals exchange trading venue with the leading operator of exchanges and clearing houses in Asia;
- Recognises the value of the LME brand, which will be preserved, with the LME remaining a recognised Investment Exchange (“RIE”) in London regulated by the UK Financial Services Authority;
- Preserves the LME’s unique business model, including the operation of the “Ring” (openoutcry trading), daily prompt date contract structure, existing membership structure and capacity for warehousing and physical delivery, which contribute to the LME’s position as the world’s price formation venue for non-ferrous base metals;
- Provides a platform for significant long term growth through the expansion of the LME’s business and operations in Asia and the Chinese market by leveraging HKEx’s resources, infrastructure and network in the region;
- Supports the development of the LME’s own clearing house, LME Clear, which will enable the LME to launch new products and services more efficiently drawing on HKEx’s track record and experience in operating three clearing houses;
- Enables the LME to leverage HKEx’s considerable IT expertise, infrastructure and resources to enhance its current IT platform;
- Accelerates HKEx’s strategy to develop its own commodity offering and to diversify its revenue sources.
If approved by the shareholders in July, the transaction is expected to close during the fourth quarter of 2012, subject to FSA approval and all other relevant conditions.
Pictured below, from the Chicago Tribune, is the famous LME ring.
- Press release, LME (15 June 2012)
- Hong Kong Wins London Metals Exchange (Tom Steinert-Threlkeld, Securities Technology Monitor, 15 June 2012)
- Update 4 – HK bourse agrees to buy London Metal Exchange (Denny Thomas and Susan Thomas, Reuters, 15 June 2012)
- Global Equity Market Cap Declined in April 2012 (GEI News, 5 June 2012)