UPDATE: LME To Introduce User Fee; Months Before Sale Decision

The London Metal Exchange is to introduce a new user fee as it gears to make its business operate on a commercial model and prepares to decide whether or not to sell the exchange.

But 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.

LME chief executive Martin Abbott said the exchange faces a period of "great challenge and equally great opportunity" and that it must be prepared to secure its financial independence.

The LME "has been operating under a constrained profit model for a number of years," he said. "If the LME is to remain independent we must assume that competition will grow fiercer and that working with a constrained profit model will seriously restrict the resources available to counter the challenges that will be faced."

Abbott's comments come as the bidding process to buy the LME gets underway, with the exchange in the process of sending non-disclosure agreements to third parties interested in submitting bids and information set to follow this week.

The exchange declined to say many non-disclosure agreements will be sent in total, but did confirm that at least 10 interested parties have approached the LME about a potential buyout.

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.

"Shareholders will be asked to consider the value of the business at some point in 2012, and it is important that they are able to compare incoming bids with the true value of the business," Abbott said.

The exchange has operated a dividend policy for several years, but its not-for-profit model has constrained its profit and dividend payments.

"The introduction of the exchange user fee will allow the LME to operate commercially and to provide a commercial return to its shareholders while still operating a low cost service," Abbott 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.

For client contracts there will be a single fee for a purchase or sale contract of GBP0.50 a lot, including matching costs.

Other exchange fees such as annual membership, warehouse listing and associated stock levies will remain unchanged.

By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413; andrea.hotter@dowjones.com

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