Key LME broker vows to stay on after HKEx deal

London Metal Exchange's largest broker says HKEx purchase will help its Asian expansion

PUBLISHED : Monday, 03 December, 2012, 12:00am
UPDATED : Monday, 03 December, 2012, 4:26am

The largest broker at the London Metal Exchange has vowed to stay on after the LME's acquisition by Hong Kong Exchanges and Clearing, as it believes the tie-up would enhance its plans to expand in Asia.

LME director Gavin Prentice, who is also managing director and global head of sales at Marex Spectron, the LME's largest broker in terms of trading volume, said the deal with HKEx would help Marex's expansion in Asia, particularly China.

HKEx announced in June it would buy the LME, the world's largest metal exchange, for £1.39 billion (HK$17.25 billion). Britain's Financial Services Authority granted regulatory approval for the takeover on Thursday.

Prentice said the deal benefits both parties, since it allows the HKEx to diversify into commodities trading and LME members, such as Marex, to expand further into Asia and China.

"Over the past 10 years, the commodities trading volume from Chinese investors has grown 10 to 20 per cent per year. There is a huge opportunity for continued growth in Asia and China," he told the South China Morning Post.

China has become the world's largest consumer of steel and other commodities owing to the many infrastructure and construction projects entailed by its strong economic growth, which is expected to come in at 7.5 per cent this year after several years at more than 8 per cent.

Speaking in his office in Bishopsgate in London, Prentice said that Asia represents about 15 per cent of Marex's commission income.

The firm has more than 600 employees around the world who help clients trade commodities ranging from agricultural products and base metals to energy and foreign exchange. It has offices in Singapore and Hong Kong, and its London office has a team of Asian staff to serve customers from that continent.

But it appears not all LME members are expanding.

British bank Barclays quit floor trading at the LME on November 22 to cut costs. Its membership has been downgraded from Category 1, which allows open outcry trading on the floor, with all the visibility and status, to Category 2, which allows only electronic and phone trading.

Hong Kong brokers worry other LME members may also scale down their trading or leave the exchange completely, after cashing in when the HKEx acquisition is completed.

"Marex Spectron will definitely stay on; however we can only speak for ourselves," Prentice said.

"The acquisition by the HKEx will mark the end of an old chapter, but it is the beginning of a new chapter of the LME. This deal can also enhance relationships for members in Asia."

While some Hong Kong brokers have suggested the price HKEx paid was too expensive, Prentice thinks differently.

"The LME commands well over 80 per cent of the world's turnover in base metals, and in September it recorded daily average volumes of 633,000 lots - a growth of 8.5 per cent versus 2011," he said.

"Overall volumes this year are up 9 per cent from 2011. It is a growing business. The sale was determined after a very rigorous and competitive bidding process."