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LME warehouses in China ‘more than necessary,’ exec says

Keywords: Tags  LME, HKEx, Hong Kong Exchanges & Clearing, JPMorgan Chase, Christian Schirmeister, Mark Burton

LONDON — It is "more than necessary" for the London Metal Exchange to establish warehouses in China, the world’s largest metals trading venue, JPMorgan Chase & Co. executive director of global commodities Christian Schirmeister told AMM sister publication Metal Bulletin.

JPMorgan, the largest shareholder in the LME, will collect £150.4 million ($240 million) from the sale of the exchange to Hong Kong Exchanges & Clearing Ltd. (HKEx). The deal is expected to close by year-end. Collectively, JPMorgan and the two next-largest shareholders—Goldman Sachs Group Inc. and Metdist Ltd.—would have been able to block the deal if they weren’t happy with the terms.

The takeover could help the LME achieve its long-term goal of establishing warehouses inside China and attract new metals business to the exchange, Schirmeister said.

"Establishing warehouses in China is something the LME has worked on for some while, before a possible sale of the exchange was even considered. They have spoken with port authorities, local representatives, members of various parts of governments, but so far no solution has been found," he said.

"We hope that, with the help of its new owners, the LME can accelerate that process. Considering that China accounts for 42 percent of the world metal demand, it’s more than necessary for the world’s leading metal exchange to have warehouses there," Schirmeister added.

Schirmeister sees the construction of a proprietary clearing house as one of the most significant aspects of the LME’s growth pipeline.

"Once (the exchange’s own clearing house) is up and running, there should be more interest from users to become clearing house members," he said, declining to suggest a timetable for the establishment of warehouses in China.

More than a year after the collapse of MF Global Holdings Ltd., many of its clients have yet to receive final payouts on assets held with the brokerage.

Bringing clearing in-house might help promote confidence in the market by extending the kind of counterparty protection enjoyed by clients of LME members, according to Schirmeister.

"We think it’s the right approach to have a clearing house that attracts not only Category I, II and III members, and a few others, but their customers as well," he said.

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