The LME prospers

Δημοσιεύθηκε: 20 Μαΐου 2008 - 05:30

Forget copper, tin or nickel: the really hot commodities are shares in the London Metal Exchange, the world's largest base metals market. Over roughly the past year, LME A shares, which are traded over the counter, have soared from £2 to £4 – providing a better return than many things dug out of the ground. That kind of rise would often indicate takeover interest but this is no ordinary company. The LME is one of the last surviving traditional exchanges, run as a co-operative by the banks and institutions that conduct business through its platforms. Returns on equity are respectable but the real value of the exchange lies in its stranglehold over the global non-ferrous metals market, where it still has about a 95 per cent market share in spite of aggressive recent competition from Shanghai and Dubai. The combined B shares, which give holders the right to trade on the LME's platforms, and A shares, which confer voting rights as well, give a market capitalisation of about £160m (using the last traded prices). That is small beer for NYSE Euronext, which has bought CME Group's precious metals trading unit, or CME Group itself, which is buying Nymex. Even Icap, just approved as a member, could afford the LME. But buying the LME is no easy task. Five tiers of membership mean that shareholders have a wealth of differing objectives. And an acquirer would have to show it could serve members better than today's structure, in which the executive board's primary function is to provide banks with the products they need to expand their own businesses. The LME's best defence of its continued independence may be Project Turquoise – banks' efforts to wrestle equity trading away from incumbent exchanges. Publicly listed exchanges may be in favour now but have their dangers. As soon as users start to feel subordinate to shareholders, they start plotting to turn the tables.

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