UPDATE: LME Board Approves First Phase Of In-House Clearing

The London Metal Exchange has received board approval to pursue self-clearing of trades, a major step in its bid to operate its own clearing house.

The new clearing house, to be known as LMEclear, will offer members and shareholders "all the strategic and financial advantages of clearing the LME's own business," the LME said Monday.

Clearing is when corporations act as counterparties to every trade and extend guarantees that trades will be settled as originally intended. LME trades are currently cleared through LCH.Clearnet.

"The Board is securing the future of the LME as the world's largest metals market," said LME Chief Executive Martin Abbott.

Earlier this year, the LME said it was giving serious consideration to the possibility of setting up its own clearing house, a move that would make it the latest market operator to bring the function in-house.

The announcement comes as the bidding process for the 134-year-old exchange begins. The LME is currently in the process of sending non-disclosure agreements to third parties interested in submitting bids.

However, the exchange said Monday that a sale of its business is far from certain and as bids are only expected in the coming weeks, it is likely to be several months before the board is in a position to make a recommendation to its members.

The exchange hasn't named any of the interested parties, but metals rivals CME Group Inc. (CME), Shanghai Futures Exchange and Singapore Exchange Ltd. (S68.SG), as well as the Dubai Mercantile Exchange, the London Stock Exchange Group (LSE.LN) and IntercontinentalExchange Inc. (ICE) have all been named by market participants as likely to be interested. All have declined to comment.

The LME board has also agreed a new exchange user fee for members to levy on client trades, it said. The new fee will come into effect from March 1 and will replace the existing exchange levy. It will be GBP0.25 a lot per side of the trade for segregated and non-segregated crosses and will include the data collection and matching fee of GBP0.03 currently. The existing levy is GBP0.05 for segregated trades and GBP0.005 for non-segregated trades, the LME said.

-By Francesca Freeman, Dow Jones Newswires; +44 (0)20 7842 9412; francesca.freeman@dowjones.com

(Andrea Hotter contributed to this report)

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