Opinion pieces are the views of the author: they do not represent the views of FastMarkets
London 17/05/2016 - These are strange times. The mood at the London Metal Exchange is defensive, a reflection of falling volumes there while business at the Shanghai Futures Exchange (SHFE) and on Comex grows.
"I am getting really fed up with reading in the press and in general about market share," LME CEO Garry Jones told participants at yesterday's market briefing.
He is right - there has been a lot of talk recently about the LME's hold on its position as the leading global metals hub amid challenges from other exchanges via new contracts and market growth.
As market leader, the LME will also have rivals casting an envious eye at its slice of the pie. And that's fine - competition is healthy and stops complacency and stagnation.
But recent LME results have disappointed, making questions about its position - and its future direction - harder to ignore.
In defence of the figures, Jones said that like-for-like comparisons with its rivals are unhelpful. "It is not one market - exchanges do not have same constituencies," he said.
The bulk of the LME's business is from the physical market, he stressed, followed by funds and financial investors and a small volume of proprietary and algorithmic trades while the business models of Comex and the SHFE are predominantly centred on prop and algo trading.
Plainly, hackles have been raised. But the metals community as a whole is loyal to the LME and passionate about its uniqueness and intricacies. They want it to succeed - it's good for business.
But their frustration stems from what they see as the risk of the LME becoming "just another American-style exchange" while it promotes its 'Third Wednesday' and monthly prompt dates to attract further participants. Yesterday it announced further incentives on the electronic Third Wednesday and three-month contracts.
Against a backdrop of increasing fees, members' profits are shrinking. This is doubly painful in what has been a tough economic environment and while prices stumble.
When the fees increases were announced, members were not shy about voicing their displeasure. Several publically warned that volumes would shrink - if it is cheaper to trade elsewhere, simple economics mean that people will do so.
But it is unfair to lay all of the blame at the feet of the exchange's new owners and management. Transforming a member-run exchange into a more commercial entity would inevitably rankle the old school, which, in agreeing to sell their shares, gave their mandate for change; and clearly HKEX would look for a return on the substantial price it paid.
Indeed, the LME has been actively making changes that put it on a collision course with the old guard, which has at times been slow to embrace change.
But despite repeated assurances that the LME has no intention of losing its physical roots, traditional traders fear that the LME's move towards promoting monthly contracts threatens its unique identity and therefore a key reason for trading there.
The LME's competitor exchanges are no better or worse but "different", Jones has said; it is this difference that makes the LME the preferred choice - for now.
From here, it is a matter of striking the finest of balances between the old and the new, between tradition and commercialisation - with the LME's very reason for being on the line. No wonder the mood is so strange.
(Editing by Mark Shaw)