UPDATE 4-Hong Kong Exchange names former NYSE LIFFE exec as LME CEO

Tue Aug 27, 2013 12:11pm EDT

* Garry Jones to be CEO and join board

* LME deputy chief O'Hegarty resigns

* Jones faces lawsuits, critics of warehousing policy

By Michael Flaherty and Melanie Burton

HONG KONG/SINGAPORE, Aug 27 (Reuters) - The Hong Kong Stock Exchange named industry veteran Garry Jones as the CEO of the London Metal Exchange, banking on a former top executive at the NYSE Liffe to help drive its expansion into commodities and beyond.

Jones, a 30-year veteran of exchanges and financial services but with limited experience in metals, inherits a difficult role at a time when the LME is caught in a controversy over warehousing metals and its impact on consumers.

In Jones, HKEx has selected an executive with a solid grasp of soft and agricultural commodities that will help HKEx expand its franchise beyond metals, HKEx Chief Executive Charles Li said on a conference call with the media.

His experience across asset classes will enable HKEx to leverage its commodities business to grow in the much larger markets of currencies, fixed income and equities as it capitalises on renminbi internationalisation.

But the new CEO's immediate priority was to manage the LME and "steady the ship", Li said.

The Hong Kong Exchanges and Clearing Ltd said Jones will begin on Sept. 30 and will be a member of the LME board in addition to his role as chief executive. Jones replaces outgoing CEO Martin Abbott.

Jones said he saw his job initially as "more evolutionary than revolutionary".

"I'm not coming in to make significant changes from day one," he said on the conference call. "It's important that I listen as much as tell people what to do at the start. There are a lot of stakeholders in this."

The announcement of an outsider to the metals market caught many by surprise but underlined Hong Kong Exchange's drive to move beyond metals, market sources said.

Reuters reported last week that Martin Pratt, chief operating officer at Triland Metals Ltd, a non-ferrous metals futures broker owned by Japan's Mitsubishi Corp 8058.T, was offered the LME CEO role.

Pratt sent an email to staff early on Tuesday informing them that he had pulled out, two sources familiar with the matter said. The reason for his decision are not known.

In a regulatory filing, the HKEx said Diarmuid O'Hegarty, the LME's deputy chief executive who was also in the running, told the exchange that he will resign after serving a six-month notice period.

O'Hegarty, a lawyer who joined the LME in 1998, lobbied for the LME in Brussels ahead of EU regulations that will come into force over coming years.

"The loss of Diarmuid is a big blow," a senior industry source said. "He will be quite hard to replace in the short term, given his established relationships in regulatory circles and given all the regulatory issues facing the LME."

MORE CHANGES TO COME

Market participants said they expected further shake-ups within HKEx, which paid more than $2 billion for the LME last year in a major deal that allowed Asia's largest exchange by market value to expand into metals trading.

While the deal was critical to Liz's expansion strategy, a metals warehousing controversy soon enveloped the world's oldest metals exchange.

The LME has been excoriated for its warehousing policy, which some consumers say has contributed to record high physical premiums for aluminum and long wait times to take delivery.

Along with Goldman Sachs and other banks and traders that own many of the world's biggest warehousing companies, the LME is facing several class-action lawsuits alleging "anticompetitive behavior" in aluminum warehousing.

HKEx has said the suits are without merit and the LME will contest them vigorously.

Restoring confidence among industrial users who say Abbott was too slow to tackle the warehousing issue will be one of the biggest challenges for his successor.

Abbott says that stockpiles and high physical prices are due to low interest rates and a market structure known as contango that make it profitable to sell metal forward and store it for months or years at a time.

The LME last month announced proposals to change its rules that are expected to sharply increase the rate at which metal will be delivered out of warehouses.

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