* A takeover needs a philosophical alignment
* LME date structure difficult for some
By Pratima Desai
LONDON, Oct 21 Leading London Metal Exchange
shareholders will insist on retaining key elements of the
134-year old exchange's unique trading and business model as a
condition to agree any sale, they told Reuters.
The LME offers standard one- and three-month contracts, but
users can also trade daily out to three months and forwards are
available for those who want to trade for several months or two
to three years down the line. The range of LME trades has
spawned a web of related trading structures worldwide.
Futures contracts are also physically deliverable, which
when they mature can be converted into warrants, giving holders
claim to material in warehouses approved by the exchange.
"One of the greatest fears among some of the membership is
that whoever buys it will turn it into a monthly-settled cash
market," a senior metals industry executive said.
"That would be like shooting yourself in the foot ... Some
of the membership will need to be convinced that someone isn't
going to come in and dismantle the existing structure."
The exchange in September restoked a global merger frenzy
among bourses when it said it is considering a sale after
receiving "several expressions of interest".
LME chief executive Martin Abbott has said that interest in
the London Metal Exchange as a takeover target has snowballed
and the number of suitors has risen to double digits.
Market speculation about potential buyers includes CME
Group Inc , the largest futures exchange in the United
States, IntercontinentalExchange and UK-based broker
Singapore Exchange , the recently launched Hong
Kong Mercantile Exchange, the London Stock Exchange , and
Eurex owned by Deutsche Boerse have also been
mentioned by metals sources.
"Most important to the membership is that in any discussions
or merger the LME's model is protected. Philosophically there
needs to be an alignment," a metals brokerage head said.
He, like others, spoke on condition of anonymity due to the
sensitive nature of the potential sale.
"A huge industry around the world has been built on the
basis of the LME's trading and warehousing model. It works well
not just for the membership, but also for the whole of the
metals market place."
Any deal would have to be accepted by 75 percent of shares.
Major LME shareholders include companies such as U.S. banks
Goldman Sachs and JP Morgan and trading firms
including Amalgamated Metal Trading and Metdist.
The LME was established in 1877 above a hat shop in Lombard
Court, and is now one of the last bastions of open outcry
Sessions at the LME take place in a trading ring with red
padded seats while visitors can watch from a gallery. Traders
juggle multiple telephones and use archaic hand signals to fill
orders from consumers, producers and hedge funds.
Some users such as banks and hedge funds would like the
LME's structure to become more aligned with other commodity
"There are people outside the industry that don't like the
date structure because it's out of sync with most futures
markets," one metal industry source said.
"There's definitely some of the investor part of the world
that simply hates that system, very difficult to understand and
get their heads around so you could get people proposing to
change that to a set date to make it pretty much analogous to