May 10, 2017 / 2:54 AM / 4 months ago

Hong Kong bourse chief ready to listen as LME plans more reform

Hong Kong Exchanges and Clearing Chief Executive Charles Li speaks during a news conference at the Hong Kong Exchanges in Hong Kong August 16, 2016. REUTERS/Bobby Yip

HONG KONG (Reuters) - The head of Hong Kong Exchanges and Clearing (HKEx) rebuffed criticism of the bourse’s handling of the London Metal Exchange on Wednesday, but pledged to listen to core users of the world’s oldest metal market as it plans more reforms.

In his first speech since a major management reshuffle last month, Charles Li reinforced his message that a major overhaul was needed at the LME when the Hong Kong bourse bought it five years ago, but acknowledged that upset among physical users had hurt turnover.

“In the history of the LME ... the past five years is pretty short, but it feels very, very long,” Li said in some of his most candid comments about the challenges of buying the 140-year-old exchange in 2012.

A hike in trading fees two years ago drove many LME users to the over-the-counter markets, precipitating a 7.7-percent fall in trading volumes last year and 4.3-percent drop the year before, forcing the exchange to consider its future.

Dwindling volumes have hurt profits at HKEx, which is trying to recoup the $2.2 billion it paid for the LME.

Fee hikes are “largely behind us” and the HKEx is in the next phase of overhauling the LME into an efficient, profitable marketplace, Li said at the LMEWeek Asia conference in Hong Kong.

The LME dominates the trading of metals such as aluminum, copper and zinc, but incursions into its territory from rivals such as the Shanghai Futures Exchange (ShFE) and CME Group have seen its share of overall copper trading fall to nearly 60 percent from 80 percent in 2008.

“TRYING HARD”

Li appealed to HKEx shareholders and traditional physical users as the LME’s new management led by Chief Executive Matt Chamberlain aims to attract funds and reverse dwindling trading volumes.

“You can trust we’re trying and we’re trying very hard,” he said.

A combination of falling trading volumes and a perceived lack of strategy at the 140-year-old exchange led to the resignation of CEO Garry Jones.

Late last month, the LME launched a discussion paper which included topics such as standardizing futures contracts to boost their appeal to financial market participants without undermining the LME’s core physical market business.

“We’re asking for the first time - what do we need to preserve and where can we be a little more innovative?” he said.

“In my mind, all the futures plan boils down to one thing: how can we make the LME an easier place to trade, a more efficient place to trade?” he said.

Reporting by Josephine Mason and Melanie Burton; Editing by Joseph Radford

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