HONG KONG, Sept 5 (Reuters) - Trading fees at the London Metal Exchange (LME) will likely be cut to bolster liquidity at the world’s oldest and largest market for industrial metals, said the chief executive of its owner, Hong Kong Exchanges & Clearing (HKEX).
A 31 percent average fee hike in January 2015 is cited by metal industry officials as a major reason behind tumbling LME volumes, and the exchange is expected to announce fee cuts when it releases an industry reform plan later this week.
“We probably increased those fees a bit too much. We probably will knock it back ... it’s a very important feature to get liquidity into the LME,” Charles Li, the head of HKEX, told a Reuters Newsmaker event in Hong Kong on Tuesday.
He didn’t give specifics on the scale or timing of such cuts.
The plan to shave fees comes amid the Hong Kong exchange’s efforts to leverage its $2.2 billion takeover of LME in 2012 by expanding into China, the world’s biggest metals consumer.
The Hong Kong exchange has partially succeeded in improving profits at the LME by raising fees and boosting electronic trading, while arbitrage activity between the LME and the Shanghai Futures Exchange has soared this year.
Falling volumes have been a concern.
Overall volumes at the LME, which has been operating for almost 140 years, in the seven months to the end of July were flat on last year. The annual drop last year was 7.7 percent.
“Obviously, the LME was a member-owned mutual regime, and they eventually became more commercialised,” Li said. “In that fee commercialisation, looking back, we probably have increased certain fees too much, and increased other fees not enough.”
Li also said the HKEX’s planned commodity platform in the Qianhai economic zone in southern China, just 50 km (30 miles) from Hong Kong, was still at an early stage.
“That’s going to be a long work in progress,” Li said.
Eventually, as China’s markets open up, the Qianhai Mercantile Exchange (QME) is intended to connect with the LME and possibly other mainland exchanges, luring customers with opportunities to be active in both the mainland’s domestic markets and international markets. (Additional reporting by Elzio Barreto and Melanie Burton; Writing by Sumeet Chatterjee; Editing by James Pomfret and Gopakumar Warrier)