London Metal Exchange
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| London Metal Exchange | |
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| Founded | 1877 |
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| Headquarters | London |
| Key People | Martin Abbott, CEO; Diarmuid O’Hegarty, Deputy Chief Executive of the LME; Tom Hine, General Counsel and Head of Enforcement |
| Products | Futures and options on ferrous and non-ferrous metals, minor metals, steel billet, and plastics |
| Corporate Website | www.lme.com/ |
Established in 1877 and headquartered in the heart of London, the London Metal Exchange offers futures and options contracts for aluminium, copper, nickel, tin, zinc, lead, aluminium alloy, cobalt, molybdenum, steel billet and the plastics - polypropylene and linear low density polyethylene. In addition, it offers LMEminis, which are smaller-sized contracts for copper, aluminum and zinc plus an index contract (LMEX).
In June of 2012, the LME was purchased by Hong Kong Exchanges and Clearing Ltd for $2.15 billion dollars in a deal set to expand major metals markets into Asia. The acquisition was completed on December 6, 2012.
The London Metal Exchange was ranked as the world's 19th-largest derivatives exchange by volume in 2010 according to the annual volume survey published by the Futures Industry Association (FIA).[1] The FIA report, published in March of 2011, notes that the LME's total volume for 2010 was up by 7.4% from the previous year, reaching almost 120.26 million contracts.
Background
The exchange says it provides a transparent forum for all trading activity and as a result helps to "discover" what the price of material will be months and years ahead. This is designed to help the physical industry to plan ahead in a world subject to often severe and rapid price movements.
The LME is a highly liquid global market with an international membership. More than 95 percent of its business comes from overseas. Because it is a principal-to-principal market, the only organizations able to trade on LME are its member firms, of which there are various categories. LME members provide the physical industry with access to the market, to the risk management tools and to the delivery mechanism.
Trading takes place across three trading platforms: through open-outcry trading in the ring, through an inter-office telephone market and through LME Select, the exchange’s electronic trading platform.
Key People
Martin Abbott, was appointed chief executive in October of 2008. Prior to joining the LME, he worked for Metal Bulletin plc as president and publisher of AMM LLC, and over his career has spent time several metals-focused companies including Amalgamated Metals Trading Inc. (as president, 1998-2000), Sogemin Metals Inc. (as associate director, 1993-1996, and as president, 1996-1997), McGraw Hill (as editor-in-chief, metals, Europe, 1988-1990), Metal Bulletin plc (As joint editor, 1984-1988), with a period spent working as the London Metal Exchange's director of marketing between 1990-1993. [2]
Diarmuid O’Hegarty was appointed deputy chief executive of the LME in October of 2008. O’Hegarty also continues his previous duties of running the regulation and compliance activities of the exchange.[3]
Acquisition by Hong Kong Exchanges
On July 25, 2012, London Metal Exchange shareholders approved a $2.2 billion takeover offer from Hong Kong Exchanges and Clearing Ltd. The vote was more than 99 percent in favor of the deal, according to an LME spokesman. HKEx's proposal won out over offers from its rivals CME Group, Intercontinental Exchange and NYSE Euronext. Sixty-seven stockholders controlling 12.86 million shares voted on the transaction, with 64 owners holding 12.82 million shares backing the bid. In a separate tally at an extraordinary general meeting, 12.75 million shares, or 99.24 percent, were voted for the sale and 98,000 against. [4]
The LME will continue to be based in London and to be regulated by the FSA. According to HKEx, the deal will help grow the number of clients in China and will help disperse LME data across Asia. In addition, HKEx said it would "keep the LME’s existing warehousing network, help the bourse develop its own clearing house and freeze trading fees until at least the start of 2015." [5]
The LME’s self-clearing program, LME Clear, is on track to launch in 2014. [6]
History and Ownership
The LME was founded in 1877 as the London Metals and Mining Company, providing contracts in tin, adding lead and zinc in 1920, aluminum in 1978 and nickel in 1979.[7]
The LMEX Index, its first index product, was started in 2000, and plastics – the first non-metal product – were introduced in May 2005. The move into ferrous metals started with steel contracts in February 2008.
The London Metal Exchange Limited, which owns and operates the exchange, is a wholly-owned subsidiary of LME Holdings Limited. The LME is a demutualized, not-for-profit organization, and exchange representatives have stated there are no plans to change the structure.[8]
LME Holdings has two classes of members. Ordinary share members hold the equity rights, and transfer is restricted to existing and new members, with Class B holders allowed only to trading and clearing rights, though these can be bought and sold. The exchange released new B shares in 2007 to meet demand from brokers and merchants.[9]
Structure and Regulation
The LME operates three side-by-side trading systems. The original open-outcry floor, known as "The Ring," operates from 11:45 a.m. to 5 p.m. London time. The LME Select electronic system introduced in February 2001 runs from 1 a.m. to 7 p.m. - extending hours into the Asian trading day in June 2006. And the exchange also operates 24-hour telephone trading among members.
The exchange operates as a market of "last resort" and provides physical delivery – though used in less than 1 percent of trades – through a network of more than 400 warehouses in 12 countries.
The LME is self-regulatory organization overseen by the UK Financial Services Authority.
Volumes
2009
The London Metal Exchange was ranked as the world's 19th-largest derivatives exchange by volume in 2009, down 1.1 percent on 2008's volume figure, according to the Futures Industry Association (FIA).[10]The FIA report, published in early April 2010, notes that the LME's total volume for 2009 reached 111.93 million.
2010
In the first half of 2010, total lots, or contracts, traded on the exchange rose 7.5 percent to 59,304,271 compared to the year earlier, while the average daily volume rose 8.1 percent to 478,260. Among the contracts showing the highest volume growth in the first six months of 2010, copper futures and options trading grew 20.4 percent to 16,338,186 lots, while volumes of lead futures and options grew 30.5 percent to 3,826,307 lots. [11]
Trading activity in the Exchange’s Mediterranean steel billet futures contract grew 385 percent to 57,606 lots ahead of the planned merger with the Far East steel billet contract.[12] The LME on July 28, 2010, merged its Far East Asia and Mediterranean steel billets contracts into a single derivative, which it hopes will create a global benchmark. The exchange is also adding a delivery point in the United States, to complement current ones in Europe and Asia.[13]
Steel trading volumes started to pick up in March after running flat for almost two years. The surge in LME steel trading comes as steelmakers and consumers such as construction companies and car manufacturers start to lock in prices and investors use steel futures as a proxy to bet on growth of the global economy.[14]
2012
Volumes in December of 2012, the year in which the acquisition by HKEx was completed, were 10 percent higher year on year. The exchange also won six industry awards in that year. By 6 December 2012, the completion date for the acquisition, 149.6 million lots had traded on the LME, the equivalent of 3.5 billion tonnes and $13.6 trillion. [15]
The exchange also won six industry awards in that year.
Product Development
The LME is evolving from its roots as an exchange for non-ferrous metals contracts in the wake of a changing customer profile and intensifying competition, notably from the Shanghai Futures Exchange, which vies with its UK rival as the seat of the largest metals complex.
Martin Abbott, LME CEO, announced the so-called "2-by-2" strategy in January 2007. This aims to double volumes in three-to-five years through organic growth of non-ferrous contracts and OTC trading.[16]
The exchange announced in June 2007 that it would introduce futures on steel billets; steel is the most actively-traded commodity after oil but efforts to launch steel futures have hitherto faced resistance from the producer community.[17]
The steel contracts launched on its electronic and phone system on Feb. 28, 2008, with open outcry starting on Apr. 28.[18] The contracts cover two regions: Mediterranean and Far East. Both contracts are physically deliverable; the initial delivery points include Turkey, Dubai, Malaysia and South Korea.
The existing complex was expanded with LMEmini contracts, for LME Copper Grade A, LME Primary Aluminium and LME Special High Grade Zinc on Dec. 4, 2006.
Plastics futures were introduced in May 2005, with contracts for polypropylene and linear low density polyethylene.
Aluminum contracts remain the most heavily-traded on the exchange, with volume rising from 36.4 million to 40.2 million in 2007. Copper Grade A ranks second at 21.4 million, followed by zinc, lead, nickel and tin, with options offered alongside the futures contracts.
In November of 2008, the LME upgraded its electronic trading platform LMEselect, in cooperation with Cinnober Financial Technology who also delivered the previous platform.[19] The exchange contended that the upgrade would provide a more robust system that offers operational efficiencies. The upgrade came on the back of a record trading month for the exchange. Exchange volumes were up 44 percent in October compared to the corresponding period of 2007 with 11,218,308 lots traded. LMEselect also recorded an increase of 23 percent on its previous record month.[20]
In September of 2009, the exchange announced that the launch of its metals contracts for molybdenum and cobalt had been delayed until Feb. 22, 2010.[21]
The LME on July 28, 2010, merged its Far East Asia and Mediterranean steel billets contracts into a single derivative, which it hopes will create a global benchmark. The exchange is also adding a delivery point in the US, to complement current ones in Europe and Asia.[22]
Product Listing
Non-Ferrous Metals
- LME Aluminium
- LME Aluminium Alloy
- LME Copper
- LME Lead
- LME LMEX
- LME LMEmini
- LME NASAAC
- LME Nickel
- LME Tin
- LME Zinc
Steel
Minor Metals
Plastics
- LME Global Linear Low Density Polyethylene
- LME North American Linear Low Density Polyethylene
- LME European Linear Low Density Polyethylene
- LME Asian Linear Low Density Polyethylene
- LME Global Polypropylene
- LME North American Polypropylene
- LME European Polypropylene
- LME Asian Polypropylene
Resources
- London Metal Exchange
For information about the LME's non-ferrous futures contracts as well as plastics and steel billet futures please visit http://www.lme.com.
- LMElive.com
For real time or 30-minute delayed prices and data direct from the LME sign up for a free trial of LMElive at http://www.lmelive.com.[23]
References
- ↑ 2010 Annual Volume Survey. Futures Industry.org.
- ↑ Press Release. LME.
- ↑ LME appoints deputy chief executive. Reuters/FXStreet.
- ↑ LME Shareholders Approve HKEx’s $2.2 Billion Takeover Bid. Bloomberg News.
- ↑ Hong Kong Exchanges Bid For LME Beats Out ICE. Bloomberg.
- ↑ [h-ttp://www.mondovisione.com/media-and-resources/news/lme-celebrates-a-record-year-following-acquisition-by-hkex/ LME celebrates a record year following acquisition by HKEx]. LME press release.
- ↑ About the LME. London Metals Exchange.
- ↑ Press release. LME.
- ↑ LME to release new B shares. Financial Times.
- ↑ 2009 Annual Volume Survey. FIA magazine.
- ↑ Press Release. LME.
- ↑ Press Release. LME.
- ↑ London sees surge in steel futures trading. Financial Times.
- ↑ London sees surge in steel futures trading. Financial Times.
- ↑ LME Celebrates a Record Year Following Acquisition by HKEx. LME press release.
- ↑ Press Release. LME.
- ↑ LME Seeks Profitable Billet with Steel Contracts. Financial Times.
- ↑ Press Release. LME.
- ↑ Press Release. Cinnober.
- ↑ Press Release. LME.
- ↑ LME Announces New Launch Date For Minor Metals. Energy Risk.
- ↑ London sees surge in steel futures trading. Financial Times.
- ↑ Press Release. LME.
