LME’s Transaction Fee Hikes Change the Commodities Trading Landscape

by on

The London Metal Exchange increased its trading fees 31% on January 1st, the first increase since the LME was taken over by Hong Kong Exchanges & Clearing Ltd. in 2012.

The 137-year-old LME had announced the fee increase in September as its owner moved to boost profit from the world’s biggest industrial metals market after a costly acquisition, as HKEx paid $2.2 billion to acquire the LME and has dealt with continuing high regulatory costs since. Credit Suisse analyst Arjan van Veen told the South China Morning Post that the LME fee rise would benefit HKEx and help it both pay off the purchase and help with the bourse’s expansion plans. “LME trading fees roughly contribute about 15 per cent of HKEx revenues so it is fairly material,” he said.

FREE Download: The Monthly MMI® Report – price trends for 10 metal markets.

Some LME members objected to the fee increase, originally announced in September to be 34%, saying it would force brokers and banks to ditch some commission-free terms and review their business models.

Traders in London

The fee structure included a significant discount on “ring” trading after the LME said in June it would keep open-outcry trading.

The LME then changed that in early December after many members complained about the 34% increase. Under a new plan, it is now extending its 40-cent ring discount to other trades, such as telephone transactions, that are based on trades in the ring. These trades are now known as basis ring and kerb trades. Taking into account the new extended discounts, the overall average trading fee increases will now weigh in at 31% from 34% originally.

The cost per lot, or transaction, for trades concluded during ring trade and the kerb will be 50 cents, while all other trades will be charged 90 cents. Only the LME’s 11 Category 1 ring-dealing members can trade in the ring.

What This Means for Metal Buyers

Clearing and fees are rapidly becoming a bigger part of the cost of every trade and the LME’s new fee structure did not happen in a vacuum. While its per-trade fees are still lower, CME Group made annual changes to its fees, too. Traders and investors will have to consider the fees of the exchange they are trading on as a bigger part of the overall cost of the transaction and not just the underlying metal cost in 2015.

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.