NEW YORK Ever
since Hong Kong Exchanges & Clearing Ltd. (HKEx) chief
executive officer Charles Li signaled his intent to look more
closely at warehousing, 2013 was destined to be remembered as
the year that rang with a bang for base metals.
Its the year the
London Metal Exchange took out its bazooka andafter
careful consideration of the field of actionlined it up,
took aim and then propelled a rocket firmly into the proverbial
rear of the warehousing system.
The debate over
warehousing has arguably overshadowed other developments at the
LME for several years.
consultation failed to properly tackle what industry
participants increasingly viewed as a major problem: long
queues in accessing metal from warehouses, along with high
premiums for physical delivery.
That debate came to a
head this past summer.
In a surprise move in
July, the LME announced proposals designed to address the
issues and launched a three-month-long consultation led by Matt
Chamberlain, the new head of business development.
culminated in a tweaking of the original proposal and a plan to
force warehouse locations with queues of more than 50 days to
deliver out more material.
Time will tell whether
the changes will make a difference. Premiums have firmed, not
eased, as the positive market conditions for financing
dealslow interest rates and a contangohave
But what the changes
to the warehousing rules represent is something far bigger.
In case anybody had
forgotten, they were a bold reminder that the LME has a new
owner and that things were going to be very different from now
That ownership change
has been accompanied by a new chief executive officer, albeit
earlier than HKEx had anticipated.
Martin Abbott resigned
in June after roughly seven years at the helm, having led the
sale of the exchange to HKEx.
resignation was swiftly followed by the departure of a number
of other senior management individuals who had worked closely
with himincluding Chris Evans, Diarmuid OHegarty
and Liz Milanand the eventual appointment of former NYSE
Liffe chief executive officer Garry Jones to the top job at the
But its more
than a new style of boss. The substance and approach are
different as well.
changes revealed this clearly, when the LME said it
wouldnt shy away from both policing and enforcing the
rules if necessary, and was seeking the legal underpinning to
So too did Jones
comments in November on the ring, which HKEx has committed to
for another year only. Noting the advance of electronic
trading, Jones said the exchange was reviewing the best
price-discovery method, sending shivers down the spines of
Its a far cry
from a commitment to the 136-year-old floor as long its members
wanted it, the long-held verbal response that the exchange has
given in the past.
But this flexing of
the exchanges muscles might well backfire, particularly
if industry peers like CME Group Inc., Chicago, can launch new
products with the backing of keyand now
disenchantedLME market participants.
There have nonetheless
been giant strides toward the launch of LME Clear, a project
initiated before HKEx took over and a critical component in the
metal exchanges plans for growth going forward.
The LME also launched
a shorter pricing period for its Asian benchmark prices,
concentrating liquidity into a five-minute window and
increasing the relevance of that price.
The exchange has said
it will introduce a Commitments of Traders report, new physical
contracts and a committee for physical users of the
Now it needs to
navigate its way through the warehouse-related lawsuits hanging
over its head, as well as develop new products, attract new
members and keep the various groupings of the exchange as happy
as possible without going back on its tougher,
If 2013 was a tricky year, then 2014 could go either