JP Morgan to buy MF Global stake in LME: sources

People walk through the office complex where MF Global Holdings Ltd have an office on 52nd Street in midtown Manhattan New York, October 31, 2011.

LONDON (Reuters) - J.P. Morgan will soon announce it has bought a 4.7 percent stake in the London Metal Exchange (LME) from defunct U.S. brokerage MF Global, two people familiar with the situation said, making it the exchange's largest shareholder.

The U.S. investment bank would pay 25 million ($39.1 million) pounds for the stake in the world's largest metal market, the sources said, implying a total value of around 530 million pounds for the operator.

An announcement could come as early as this week.

The sale to J.P. Morgan could shift the odds in the takeover battle for the LME, one of the few exchanges to still operate an open outcry ring, which has thrown its doors open to a potential 1 billion pound takeover.

The LME would open its books to potential bidders by December 8, a spokesperson for the exchange had said earlier. But a source close to the LME later said this now seemed ambitious, and that the date could be pushed back.

J.P. Morgan, which already holds a 6.2 percent in the LME, declined to comment. The LME also declined to comment, as did KPMG, the administrators for MF Global's UK unit.

Goldman Sachs is also a large shareholder in the LME. Two likely contenders for the 1877-founded group are the Chicago Mercantile Exchange and the IntercontinentalExchange energy market, both U.S. groups.

J.P. Morgan would separately also buy the B-shares held by MF Global for 2 million pounds, one of the sources said.

These shares give the holder the right to trade on the LME and can be sold separately to other members of the exchange. J.P. Morgan is already holding B-shares, and it was unclear what would happen to the new shares it would now acquire.

Industry sources told Reuters last Wednesday that MF Global's ring dealing seat on the LME will be bought by U.S.-based broker INTL FCStone.

Selling the stake would be a boost for creditors of futures brokerage MF Global, which filed for bankruptcy protection last month, and for its clients, some of whom have seen their positions frozen ever since.

The shortfall of customer funds at MF Global may be around $1.2 billion, about double initial estimates from regulators, the trustee liquidating the company said on Monday.

Regulators are investigating what happened to the money and whether MF Global may have improperly mixed customer money with its own -- a major violation of industry rules. No charges have been filed.

($1 = 0.6400 British pounds)

(Additional reporting by Melanie Burton)