Hong Kong 14/06/2016 - The London Metal Exchange (LME) and its parent company Hong Kong Exchanges & Clearing (HKEX) are listening to concerns voiced by their members, but do not react to threats, they said on Tuesday
Last week, former LME CEO Martin Abbot announced that he had been approached by market participants to look into a feasibility study for a new metal trading platform.
It came following concerns that LME fees were too high and that members were being increasingly side-lined in favour of HFT and algorithmic traders, who can now directly access the electronic platform LMEselect.
The news has grabbed the attention of both exchanges.
Tackling the issue during a press conference here today, HKEX CEO Charles Li said he would not comment on individual platforms, but wanted to understand members’ issues.
Li disagreed that the fee structure was too high, and said it was a myth that members were suffering losses because of higher fees.
"If we run a monopolistic business with abusive practices and trying to rip off everyone, then I want to see the evidence," he said.
However, HKEX would look at the possibility of a fee re-structure on certain charges, although he did not add any further details. As well, he said that any alterations would be made as they constantly review the structure and would not be made because of challenges.
"[We are]not going to jump up and say 'can I give someone money' because someone made a threat – people make threats all the time and the other exchanges are threatening with actual business. We are reviewing our fees and other structures all the time, but not because of voices," he said.
As well, different members had different needs and the exchange was trapped in an impossible position of trying to please everyone.
BROAD VIEW NEEDED
"We can’t pander to one group or another, we have to look at the market as a whole," LME CEO Garry Jones said.
When the LME was bought by HKEX it was always on the understanding that fees would be increased and the exchange would be commercialised. The members did not go with HKEX because they ‘loved’ the exchange, but rather because it paid the highest price.
But, when HKEX purchased the exchange it did so with the intention of keeping the original DNA with its roots in the physical market, while also investing heavily in technology, as well as building a clearing house.
"We have done everything that the old member exchange did not do – they didn’t have the means, ability, didn’t have the willingness – we did all of that because we want to run a modern exchange. We also know (the) membership is a unique commercial interest and we need to find ways to balance that," Li said.
"If somehow people can start a rival that can provide the same level of services, same quality, [and] somehow charge next to nothing, then there are two possibilities – one that’s wishful thinking, or two – maybe I am in the wrong business or the wrong model," Li said.
As well, the unique structure of the LME with its physical, telephone, electronic and open outcry market would help it face competition - particularly in a high-cost and tough regulatory landscape.
"The alternative is just electronic, and these are the things members said they do not want," said Jones.
"If (they) want to provide an alternative at cheap fees and member-owned, the only way is for a little investment on an electronic platform – that can be done cheaply – but I thought our members did not want us to be that," Li said.
"If you want to offer services similar to what we are offering with warehousing, date prompts structure, global trading, risk management and can do it [cheaply]…maybe I can be taught a few lessons," he added.
Li and Jones were both hopeful that they can reunite the industry and are fully prepared to listen. Connections with Asia would open the door to more business and provide opportunities for Chinese companies that had never before traded on the LME - at a benefit to both old and new participants.
"The future is with us. [Members] should have faith. We will listen and we are not going to be arrogant," said Li.
"But [members] also need to be balanced and objective and not be clouded and blinded by all the difficulties that are making everybody’s life difficult today. I hope we can get to that point," he said.
(Editing by Martin Hayes)