By Andrea Hotter
Hong Kong Exchanges and Clearing Ltd. (0388.HK) has been picked as the preferred bidder to buy the London Metal Exchange, and says the LME and its members will significantly increase trading volumes through improved access to China. The LME says it is a "compelling strategic opportunity" to grow its business, particularly in Asia and specifically in China.
What is the rationale for the deal?
EXISTING BUSINESS MODEL INTACT
-The deal preserves the LME's unique business model, including open-outcry trading in the ring, daily prompt date contract structure, membership structure and capacity for warehousing and physical delivery.
-Hong Kong Exchanges will not increase fees for contracts currently traded on the LME beyond the levels to be implemented on July 2 before Jan. 1, 2015.
-HKEx will support the development of the LME's own clearing house, LME Clear, designed specifically to meet the needs of LME members.
-The LME will remain based in London as a regulated investment exchange, under supervision of U.K. regulator the Financial Services Authority.
After the deal, Hong Kong Exchanges plans the following:
-to enhance market data distribution and connectivity into Asia (including China)
-to support the LME in expanding its warehouse network in Asia (including China)
-the introduction of new products and services
-expansion of the number of mainland Chinese participants and clients
-to develop the LME over time in accordance with the needs of its members and market participants
-to enhance the IT infrastructure of the LME and support its strategy of progressively upgrading its core IT platforms to drive business growth.
Martin Abbott, LME chief executive said: "This proposed combination will secure the future of the LME for its next 135 years. The LME's global benchmarks plus Hong Kong Exchanges' pre-eminent market position in Asia, its IT and trading resources and clearing expertise will cement the LME's position as the world's foremost base metals trading venue."
Charles Li, Hong Kong Exchanges' chief executive: "The acquisition of LME Holdings represents a unique opportunity for us to acquire in one stroke a position of global leadership in the commodities market. This is consistent with our strategy to expand beyond equities and equity derivatives and offers significant opportunities for revenue growth. Hong Kong Exchanges brings a unique ability to help the LME grow its business in Asia and, particularly, China and we will capitalize on this to deliver value for all our stakeholders. We are looking forward to working with the team at the LME to achieve these objectives."
Write to Andrea Hotter at email@example.com