London Metal Exchange cuts fees after pressure from members

The London Metal Exchange has bowed to pressure from disgruntled members and slashed fees for one of its most popular trades in an attempt to stem falling activity.

The move is a climbdown for the world’s centre for metals trading and its parent company Hong Kong Exchanges and Clearing, which bought the 139-year-old exchange for £1.4bn in 2012.

Charles Li, chief executive of HKEx, had defended the LME’s fee structure as recently as June, saying its charges were not excessive and it was not “ripping off” its members.

The LME said late on Friday that it would cut fees for short-dated trades by 44 per cent to $0.50 as it sought to address concerns by its members and arrest sliding volumes.

The LME, which has been forced to move out of its new headquarters in London because of a structural defect in the office building, said it would also cap charges on transfers of positions and reduce margins at its clearing house.

The exchange said the measures “will ensure the LME continues to grow and thrive as the global home of metals trading”.

Activity on the LME has been falling since it raised trading and clearing fees in January 2015, a move designed to provide money for investments in new systems.

Volumes in the first six months of this year were down almost 9 per cent on the same period last year. While that partly reflects weakening demand for industrial metals, it is also the result of brokers taking business to rival exchanges such as Comex in New York, or by doing business directly with counterparties off exchange.

A group of LME brokers this year held discussions with Martin Abbott, a former chief executive of the LME, about the creation of a rival exchange. The root of their discontent was partly down to fees that had been put on so-called Tom/Next trading, a popular short-dated trade used by consumers and producers to manage inventory.

While Friday’s moves sought to address those concerns, brokers said it was not clear it would be enough to ease discontent in a market that has also been hit hard by a commodity downturn. Wide-ranging reforms to the LME’s warehousing system have also upset some operators.

The LME’s new fee cuts come into effect on September 1.

Mr Li said: “The LME remains the cornerstone of HKEx’s global commodity strategy. In addition to these market structure changes, we will continue to expand the LME’s presence in Asia, especially China.”