Garry Jones is no stranger to exchange competition.
As CEO of the London Metal Exchange, which was acquired by the Hong Kong Exchanges & Clearing (HKEx) last year, Jones been in the exchange, trading platform and derivatives dealer space for most of his career. The LME deal represents a new set of opportunities, he said.
“Hong Kong’s acquisition of the LME was interesting, because for them it was the first real push into a new asset class,” Jones said. “They bought the LME because of the strong franchise in metals but also as a bridgehead into Asia as well.”
He said that kind of M&A is moving exchanges out of their core areas and into new areas. “I think most exchanges realize that in order to grow at a particular rate, you have to do it not just organically, but by acquisition.”
For LME, the biggest change to its market is coming from the regulatory changes from the European Union. The European Market Infrastructure Regulation (EMIR) rules are forcing metals brokers to retool the way in which hold customer funds. Prior to EMIR, they could trade on the markets for clients and net positions on the LME. Now such firms will be required to segregate those accounts.
“The old FCM model changes because you can’t net positions,” he said. “That’s particularly important in the LME world, because all of our intermediaries have dual capacity. They make markets on the underlying metals markets as well as trade on the exchange.”
Despite the new rules, Jones said there is much room for the metals business to grow, with new customers in Western countries and more clients from Asia signing onto the LME.
“We’re now expanding the focus of the LME right across the value chain from producers to smelters, intermediaries, consumers, recyclers, etcetera on a global basis” he said. “And secondly, there is a whole financial market value chain with hedge funds, proprietary traders, algos, etcetera. We have to make sure we give more and more access to that complete range people.”
Going forward, Jones is working on creating easier and more efficient access points for customers. LME, like other legacy exchanges, still offers a mix of electronic, phone and floor trading.
“Our focus right now is on improving the bandwidth of the electronic offering, lowering the latency, and making sure the connectivity options are broadened as well,” he said.