LCH.Clearnet triples fee for LME before end of clearing deal

May 15, 2013 05:49 PM
Some firms say they will eat costs

LCH.Clearnet Group Ltd., which clears trades made on the London Metal Exchange, plans to triple a fee levied on contracts before the LME takes over clearing itself next year.

The so-called registration fee will rise to 15 pence (23 U.S. cents) a contract from 5 pence as of June 1 for so-called clearing members of the LME, London-based LCH.Clearnet said today in a statement. That includes companies from Jefferies Group LLC to Deutsche Bank AG, the LME’s website showed.

LCH.Clearnet, Europe’s biggest clearinghouse, said it has spent money on tasks including regulatory compliance and improved risk-management services. That meant higher charges were necessary, Alberto Pravettoni, chief executive officer of repo and exchanges at the clearinghouse, said in the statement.

“Customers won’t pay higher commissions, so it means member firms eat costs again,” Andrew Patterson, head of metals trading at Newedge Group SA in London, said by e-mail. The company is an LME clearing member.

Clearinghouses stand between buyers and sellers to reduce the risk of default and have become more valuable as regulators seek to increase central clearing of derivatives. LME Clear, the exchange’s own clearinghouse, is still on track to start operating next year, bourse spokeswoman Miriam Heywood said by phone today. The LME has not given a termination notice about its clearing contract with LCH.Clearnet, Juliana Wheeler, a spokeswoman for LCH.Clearnet, said.

$14.5 Trillion

The LME is the world’s largest marketplace for industrial metals from aluminum to zinc and handled 159.7 million contracts worth $14.5 trillion last year. Hong Kong Exchanges & Clearing Ltd. bought the bourse in 2012 for $2.2 billion.

The increased fee will apply to Newedge and the LME’s 10 other so-called Category 1 members as well as the 29 Category 2 members. All of the 40 members can make trades electronically and by phone, and the Category 1 members also are authorized to trade on the exchange’s floor.

Higher clearing fees mean “increased cost on everybody’s business,” said Simon Van Den Born, London-based global head of metals at Marex Spectron Group, a Category 1 member.

Bloomberg News

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