October 20, 2014 / 11:12 AM / in 5 years

LME CEO plays Asia card as gold market decides on fix replacement

LONDON (Reuters) - The London Metal Exchange (LME) hopes its links to Asia and expertise in physical metals will help it win the right to manage the century-old London gold pricing benchmark, chief executive Garry Jones said.

The Chief Executive of the London Metal Exchange, Garry Jones, speaks during an interview with Reuters in Santiago, April 7, 2014. REUTERS/Eliseo Fernandez

The 137-year-old exchange is also upbeat that Chinese regulators will give the green light to extend its global base metals warehouse network to mainland China perhaps next year, a key element in its strategy to capture more business from the world’s biggest metals consumer, he told Reuters.

The LME, owned by Hong Kong Exchanges and Clearing Ltd, has enjoyed a string of recent successes, including

winning the right this week to take charge of London’s platinum and palladium pricing benchmarks.

The LME is one of five companies shortlisted to replace the gold “fix” benchmark with a new electronic system.

A lot of the same people who trade physical industrial metals such as copper on the LME also buy and sell precious metals, Jones said in an interview.

“We feel that there’s a lot of support from the LME to play a bigger role in precious metals because of those physical players.”

The LME’s new pricing process will be run via bespoke platform LMEbullion, which is an electronic version of the current round-by-round fixing process.

“We’ve duplicated the kind of system they do verbally and created an electronic system which is exactly what they want,” Jones said. “Some of the work could be applied to the gold market if we’re successful with that.”

LME Head of Business Development Matthew Chamberlain told Reuters earlier this week the LME had built LMEbullion primarily to participate platinum and palladium but noted the gold fixing process was very similar. “So what we said is that if the market would like to use (it) for gold as well then we are very happy to discuss that,” he said.

Now that the LME has an Asian owner after HKEx bought the exchange for $2.2 billion in December 2012, the LME is also touting its eastern links to gold market participants.

“One nuance of our approach is: yes it is the London gold price, but we think we can give access to that to Asia quite easily — that’s a big tick for us,” Jones said. “From that perspective its one of our strongest points.”

“We have to gain legitimacy in the gold market and winning platinum will help us to do that. But we’re under no illusions, it doesn’t buy us any special favors — we have to go out and win this separately on its own merit,” he added.


In the LME’s core base metals franchise, Jones said he was positive on the Chinese government allowing the opening of LME-approved storage facilities in mainland China.

With the LME’s focus on physical metals, having delivery and storage depots in the world’s biggest metals consumer would be a big boost to its expansion plans.

Past efforts to get approval for LME Chinese warehouses have been blocked by regulators, but recently there has been a new although gradual move toward more cooperation, Jones said.

On Oct. 27, HKEx itself is due to launch a link with the mainland Shanghai exchange that will allow international investors to trade shares in both places, which has been hailed as a milestone in opening up China’s capital markets.

Eventually that type of link could also be expanded for commodities trading between China and international markets and is a good sign that regulators are likely to also approve storage facilities, Jones said.

“We’re talking to Chinese users and Chinese warehouse owners, and Western warehouse owners who own property in China, and everybody thinks it’s a good idea,” he said.

“We think that over time, we’re hoping that a warehouse will be licensed in China. We have to be clear, we’re not trying to compete with Chinese domestic exchanges, we’re trying to work with them. It’s a regulatory issue so it won’t be until next year for sure.”

Reporting by Eric Onstad, editing by David Evans

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