New LME broker says targets China business growth via investor Maike

Mon Apr 28, 2014 8:16am EDT

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By Melanie Burton

HONG KONG, April 28 (Reuters) - New London Metal Exchange (LME) broker Traderight Limited aims to tap the contacts of its biggest investor - China's top metals trading house Maike - to woo growing Chinese volumes and build business, the broker's managing director said.

China is the world's biggest consumer of most refined metals but its use of the LME so far has been constrained by tight regulations on movement of capital and by LME membership rules.

But the regulations are expected to eventually ease. Anticipation of new business growth from the mainland was a driving factor in Hong Kong Exchanges and Clearing's $2.2 billion purchase of LME in 2012.

London-based Traderight has been slowly ramping up since it was approved as a category 2 LME member last April and is banking on introductions through Maike and its three other shareholders for business, Steven Spencer told Reuters on the sidelines of an industry conference in Hong Kong last week.

"Maike has a futures business all over mainland China. They are in a position to aggregate investor business coming out of mainland China and Hong Kong. Also with us they have a presence in London which is what they wanted," he said.

Traderight's top investor is Triway International, a unit of Maike Investment Holding Group, which has a 40 percent stake. Xenmet, a joint venture of UK-based Ambro Capital and Saudi Arabia's Xenel Group, holds a 30 percent stake.

Other owners are Swiss broker Kommodities Partners, with a 20 percent stake, and top London metals hedge fund RK Capital Management LLC, which owns 10 percent.

Up to a quarter of electronic trading volume of benchmark contracts on LME comes from customers in Asia, its chief executive said last week. That is up from around 16 percent in 2012.

REGULATORY COSTS

Through Traderight, Maike has become one among only a handful of China entities that have an LME membership stake, allowing it to pay lower commissions and have greater security over the confidentiality of its trades.

China will account for about 30 percent of the broker's business medium term, said Spencer, adding there was also scope to branch out into other contracts such as soft commodities this year.

Tougher regulation governing capital that has driven banks such as Barclays and Deutsche Bank to exit commodities has offered brokers opportunity for more business but also raised costs, he said.

"Unless the UK regulators find a way to deal with the restrictive burden of regulation spilling down from the EU and the G20, the opportunity to attract Chinese volumes to the UK and LME, rather than Comex and Shanghai, will be lost," he said.

"It is probably the single biggest barrier to successful exploitation of the Chinese investment markets." (Editing by Muralikumar Anantharaman)

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