HKEx to examine LME warehousing rules - FT

Traders and clerks react on the floor of the London Metal Exchange in the City of London February 14, 2012.

LONDON (Reuters) - Hong Kong Exchanges and Clearing Ltd (0388.HK) (HKEx), the prospective buyer of the London Metal Exchange (LME), said it will look at the lucrative metal warehousing business that has attracted investments from Goldman Sachs (GS.N) and Glencore (GLEN.L), the Financial Times reported on Sunday.

LME regulations allow companies operating warehouses in the global network registered by the exchange to release only a fraction of their inventories each day - much less than is regularly taken in for storage.

Clients of the exchange - the world's biggest marketplace for industrial metals - wait in queues to collect the metal, all the while paying rent to warehouses. The warehouse operators blame logistical bottlenecks for delays but critics say it is a tactic to increase rental income.

HKEx, which on Friday agreed to buy the 135-year-old metals marketplace for 1.4 billion pounds subject to shareholder approval, said it planned to change the rules governing the LME's warehouse network in an attempt to shorten the wait to take delivery of metal, the FT reported.

Charles Li, chief executive of HKEx, was quoted as saying that warehousing was a "very challenging issue."

"It is no longer just a simple logistic challenge issue… There are behaviour issues. We need to look at the rules, what behaviour they encourage and what behaviour they discourage," Li was quoted as saying.

But in a later statement clarifying his views, he added: "Our position is no different from the current LME position."

HKEx's bid must still pass a vote of the LME's shareholders, of which the largest are JPMorgan (JPM.N) and Goldman Sachs.

Martin Abbott, chief executive of the LME, has in the past attributed the problem to logistical challenges in removing metal from warehouses and low interest rates that make it easy to finance inventories.

The LME said, "We are constantly monitoring the way that LME warehousing functions and will take action when appropriate."

(Reporting By Veronica Brown; Editing by Marguerita Choy)