By Eric Onstad
LONDON (Reuters) - The London Metal Exchange (LME) hiked trading fees for 2015 by 34 percent on Monday as its owner moved to boost profit from the world's biggest industrial metals market after a costly takeover.
The 137-year-old LME had warned of hefty increases after years of operating as a member-owned market that kept a lid on trading fees, but the average rise turned out to be significantly less than some members had feared.
The LME also said in a statement it would provide an "all-in" transaction fee in a single currency, the U.S. dollar.
The hikes are another major step by the LME's owner, Hong Kong Exchanges and Clearing Ltd (HKEx) (HK:0388), to increase revenue after splashing out $2.2 billion to buy the exchange, a price that analysts said was very expensive.
"The new LME tariff is competitive and ensures we can continue focusing on innovation and offering users the highest levels of service," said Garry Jones, LME chief executive and HKEx co-head of global markets.
HKEx has invested hundreds of millions of pounds into the LME to modernise it, make it more competitive and due to increased regulation, Jones told a news conference. "The LME as was, just three years ago, would not survive in today's environment."
The new tariff structure includes a significant discount on "ring" trading after the LME said in June it would keep open-outcry trading, bucking a trend by most other markets to shift to all-electronic operations.
The LME said clearing fees will remain unchanged, a week after the exchange launched it own clearing house, LME Clear.
"Members understand that we will have a much better exchange providing much higher quality of services, product capability, regional expansion, currency flexibility, and much greater Asian and China participation," HKEx Chief Executive Charles Li told a news briefing in Hong Kong.
PROGRESS ON CHINESE WAREHOUSES
Jones said the LME has moved forward in its long-standing goal of opening warehouses in top metals consumer China.
The LME has sought for many years to set up delivery networks in China to grow its business, but Chinese regulators have not approved the LME opening metals depots there.
"There's considerable progress and discussions going on all the time, we had some in fact the last few weeks," Jones said.
The LME would like to work with the Shanghai Exchange, which also trades base metals such as copper and aluminium, and already has a warehouse network, he added.
The LME, in setting its new fees, likely kept a close eye on remaining competitive with the CME Group (O:CME).
Although the LME still controls the vast majority of industrial metals futures trading, its U.S. rival has been carving out a growing share of the global copper market with its Comex contract and in May launched a new aluminium contract in a big push to grab some of London's $51 billion market for the metal.
A fund manager had told Reuters that the fees he was charged for trading on the CME were about 73 percent higher than the old LME fees.
"It's only logical now that you have to increase fees to be more in line with other exchanges that are for profit. It's still very competitive," said Robin Bhar, analyst at Societe Generale in London.
Before the LME's sale in December 2012, it was owned by the banks and brokers that used it and therefore trading fees were kept very low for members.
HKEx promised when it was bidding for the LME that it would freeze the low fees during an initial period, but the moratorium expires in January.
(Additional reporting by Michelle Price in Hong Kong and Veronica Brown in London; Editing by Michael Urquhart)