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LME eyes move beyond metals, Jones says

Mar 13, 2014 | 10:48 AM |

Tags  Garry Jones, LME, London Metal Exchange, Futures Industry Association, Andrea Hotter

BOCA RATON, Fla. — The London Metal Exchange is looking to broaden its scope, according to chief executive officer Garry Jones, noting that future product launches won’t necessarily stick to the traditional metals suite and existing products that aren’t deemed fit will be dropped after a review.

“Once we have upgraded the LME’s technology and have launched its clearing house, we can launch new products more quickly, and they need not be just metals. In five years’ time, the ‘M’ in ‘LME’ will stand for ‘M,’ not metals,” he said, without elaborating.

At a briefing during the Futures Industry Association’s annual conference in Boca Raton, Fla., Jones said the single-largest problem for exchanges lies in launching new products.

“About 95 percent of new products fail miserably, whichever exchange you are. That’s mainly because people come up with bright ideas but don’t really test them in the market to see if there’s a real demand and if they can get significant liquidity,” he said.

“We’re observing the over-the-counter market to see if there are markets that could come on-exchange. We’re looking at every contract we list to see if it meets the current standard; we’ll drop those that don’t, and launch ones that do,” Jones said.

The exchange plans to learn from past mistakes because “even where LME contracts are not performing, the accumulated knowledge and experience from the contract can be used to deliver a higher-quality trading experience,” he said.

The exchange is considering physical premium contracts, which Jones said might be a helpful complementary tool in allowing the market to hedge the nonqueue-based element of premiums, referring to long lines to access metal stored in the exchange’s network of approved warehouses.

“We care about all our users—from the producer to the consumer—but I have to warn you, they don’t all have the same view. Sometimes I feel like putting them in the same room and saying, ‘when you sort it out come and tell me,’ because everything we do generates different opinions,” he said.

“At the end of the day, we’re just the exchange; we’re just the central marketplace. It is our job to be credible for trading, and we don’t care whether the markets go up, down or sideways. We prefer it goes up more often, clearly, as we’re running an exchange, after all. Trying to take into account the different views of people in the value chain is one of our biggest challenges,” Jones added.

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