November 27, 2018 / 11:59 AM / 12 days ago

Exclusive - Traders in talks to form first LME ring member in decade

LONDON (Reuters) - A group of traders are in talks with Sigma Broking Ltd to create the first new open-outcry member of the London Metal Exchange (LME) in more than a decade, three industry sources said.

FILE PHOTO: Traders work on the floor of the London Metal Exchange, in London, Britain September 27, 2018. REUTERS/Simon Dawson/File Photo

Discussions have been going on for several months, including with the LME, but a deal has not yet been finalised and no formal application to the world’s top metals exchange has been submitted, said the sources, who declined to be identified.

Privately-owned Sigma, the LME and Chris Adams, the head of the dealers’ group, all declined to comment.

A new member would be fresh blood for the LME ring, the last open-outcry trading venue in Europe, which has steadily lost members over the years.

The LME - owned by Hong Kong Exchanges and Clearing Ltd (0388.HK) - has nine firms that trade in the ring, down from about 30 during a peak in the late 1980s.

In 2014, the LME’s new management reviewed operations and decided to keep its open-outcry trading, bucking a trend by most other markets to shift to all-electronic operations.

If the partnership between the ring dealers and Sigma is finalised and accepted by the LME, it would mark the first new ring member on the LME since EDF & Man joined in 2007, not including companies that have taken over existing members.

Chinese broker GF Financial Markets and China Construction Bank International bought existing LME ring dealers Natixis in 2013 and Metdist in 2016 respectively.

In the ring, a circle of padded red-leather seats, traders use arcane hand signals during five-minute bursts of intense trading in copper, aluminium, zinc, lead, nickel and zinc.

The ring has its roots in the early 19th century when the Royal Exchange, the world’s first commodities market, became so crowded, metal merchants gathered at the Jerusalem coffee house on Cornhill in the City to conduct business.

METALS EXPERIENCE

Sigma mainly trades listed derivatives for institutional clients, including some commodities, according to its website, but it is not a member of the LME, the world’s oldest and largest market for industrial metals.

Sigma’s Chief Executive David Mudie was head of the UK arm of broker R.J. O’Brien Ltd until he joined Sigma in February 2017, according to his LinkedIn profile. He declined to comment.

Chicago-based R.J. O’Brien, which bills itself as the oldest and largest independent U.S. broker, became a Category 2 member of the LME in July 2015 while Mudie was chief executive of the UK business.

Second tier LME members are allowed to trade on the LME’s electronic platforms and the telephone market but not in the ring.

Sigma has had a good year, posting a profit of 2.29 million pounds in the financial year to the end of May, up from 223,175 pounds in the previous period, according to accounts filed at UK Companies House.

Sigma, majority owned by trader Matthew Kent, had available cash of 1.7 million pounds at the end of May, up from 124,917 pounds at the same time last year, the filing showed.

LME REQUIRES CAPITAL

In August, Sigma sold its spread betting arm Sigma Trading to InterTrader, owned by FTSE-100 gambling firm GVC Holdings plc (GVC.L), the accounts showed.

The proceeds from that deal would help provide the capital to invest in an expanded metals operation, industry sources said.

The dealers group’s Adams is head of LME ring dealing strategy for Sucden Financial, one of nine Category 1, open-outcry members of the 141-year-old LME.

Sucden declined to comment.

While Adams has extensive experience with LME ring trading, especially on lucrative spread trades, he would need the backing of an established firm such as Sigma to establish a new ring trader, the sources said.

Adams served as a director of Sigma London LLP, a firm linked to Sigma Broking, from 2005-2011, filings show.

To be approved as a top-tier LME member, a firm must have capital of at least $5 million, be approved by UK regulators the Financial Conduct Authority and get the green light from the LME executive and board.

Reporting by Eric Onstad; Editing by Veronica Brown and Emelia Sithole-Matarise

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