LONDON (Reuters) - A new company, NFEx Markets, is seeking to challenge the London Metal Exchange’s (LME) dominance in industrial metals with plans to launch a trading platform in the first quarter of next year.
NFEx will mimic the forward contracts of the LME, which has seen its market share eroded in recent years, in an attempt to attract physical trade, the new company said on Monday.
The LME acknowledged it faced new competition by smaller, nimble entrants, but said they would also face regulatory challenges.
NFEx, incorporated in March this year and with registered offices in London’s financial district, said it would operate a digital platform built by Autilla, a financial technology firm operating in commodities.
Mike Greenacre, Autilla’s chief executive, said NFEx would copy the LME’s offering and that Martin Abbott, a former chief executive at the LME, was a senior advisor.
“Contracts and trade dates will match established physical industry practice,” the company said in a release. “This new trading platform will not replace or disturb current trading models but will be complementary to them.”
Volumes on the LME have fallen since a large increase in trading fees in 2015 pushed some trading activity to over-the-counter markets.
To halt the slide the exchange has sought to attract financial traders by promoting monthly trading.
But this has upset industrial users who fear the plans could further erode volumes and even shake the foundations of the LME’s benchmark contracts.
The LME may have to face new entrants, but they will also face hurdles, the LME’s Chief Executive Matthew Chamberlain said.
“Are there disruptive players in the market? Yes, possibly, but let’s not forget that they will also have the same regulatory burden ... It’s a big lift, we know it,” he told the IDX derivatives conference in London on Tuesday.
“There’s a big difference between saying you’re going to do something and actually delivering a regulatory satisfactory way of doing it.”
Another metals trading platform, Germany’s Metalprodex, was launched late last year allowing delivery of physical metal within two days - an service not currently provided by the LME.
Metalprodex said on Tuesday it was seeking to boost use of its platform by the large Swiss commodity trading sector by hiring as a consultant former Noble metals director Alexander Nizan, based in Zug, Switzerland.
Greenacre said NFEx could be “a little more flexible on fees” and would appeal to industrial traders who want to hedge specific dates.
“If the LME were to go to a (monthly) third-Wednesday model, we’ll maintain the current structure as it operates now.”
He said no one had yet committed to trading on the new platform but “the market has been canvassed, and the response has been enough for us to make this step.”
NFEx is negotiating with several clearing companies to clear trading on the platform, he added.
But metals traders said NFEx could struggle to gain business from the 140-year old LME.
“If they are going to undercut prices it might help,” said a copper consumer. “But will they get the critical mass they need? That could be a long time coming.”
Reporting by Pratima Desai, Peter Hobson, Eric Onstad and Michael Hogan; Editing by Louise Heavens, Veronica Brown and David Evans