HONG KONG The Hong Kong Stock Exchange named industry veteran Garry Jones as the CEO of the London Metal Exchange, selecting a former top executive at the NYSE Liffe to help drive its expansion into commodities and beyond.
Jones, with 30 years of experience in exchanges and financial services, but 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, market sources said.
But it is his experience across asset classes that will enable HKEx to leverage its commodities business to grow in the much larger markets of currencies, fixed income and equities as it capitalizes on renminbi internationalization, the sources said.
The Hong Kong Exchanges and Clearing Ltd (0388.HK), as the exchange is formally known, said Jones will begin on September 30 and will be a member of the LME board in addition to his role as chief executive. Jones replaces outgoing CEO Martin Abbott.
The announcement of a candidate seen as an outsider to the metals market caught many by surprise but underlined Hong Kong Exchange's drive to move beyond metals, market sources said.
"It's not an easy job. Abbott's a very difficult act to follow. This is not just about metals, it opens up markets more broadly for them," said one senior industry source.
Several top industry executives were said to be in contention for the LME role. 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.
It was not clear following the HKEx announcement on Tuesday what happened to Pratt's candidacy.
In a regulatory filing, the HKEx said Diarmuid O'Hegarty, LME's deputy chief executive and who was also in the running for the role, told the exchange that he will resign from his duties after serving a six-month notice period.
"The loss of Diarmuid is a big blow. That to me is probably a bigger issue," the source added. "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."
Market participants said they expected further announcements of management shakeups to come as HKEx reshapes the LME.
The HKEx, led by former J.P. Morgan banker Charles Li, paid more than $2 billion for the LME last year, in a major deal for the Hong Kong bourse that allowed the Asia's largest exchange by market value to expand into metals trading.
While the deal was critical to Li's expansion strategy, a metals warehousing controversy soon enveloped the world's oldest metals exchange.
The LME has been damaged by prolonged and scathing criticism over its handling of 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 (GS.N) 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 outgoing CEO Martin Abbott was too slow to tackle the warehousing issue will be one of the biggest challenges for his successor.
Abbott has maintained 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 announced last month changes to its rules that are expected to sharply increase the rate at which metal will be delivered out of warehouses.
Beyond warehousing and lawsuits, the new chief will also need to navigate increased regulation of financial markets and growing competition from Shanghai Futures Exchange and CME Group's (CME.O) COMEX copper contract.
Abbott, who netted more than 7 million pounds ($10.92 million) from the sale of the LME, was hired as CEO from top trade magazine Metal Bulletin where he was publisher. His predecessor, Simon Heale, was a former accountant with Price Waterhouse and a director at Cathay Pacific Airways.
($1 = 0.6413 British pounds)
(Reporting by Michael Flaherty; Additional reporting by Melanie Burton in SINGAPORE; Editing by Matt Driskill)