LME looks at its own clearing system

The LME said late last month it was considering creating its own clearing system, a project which if successful could significantly boost revenues and allow speedier product development.

The exchange said at the time it was considering both debt finance and a rights issue, but analysts said LME members might baulk at a request for capital.

Yesterday, Mr Abbott said the final decision on the project will be taken by the LME board and using debt would be a “very clean way of financing” a potential clearing house.

Asked whether the exchange would consider a partnership, he replied: “If you look at our strategic rationale for doing this it’s about getting control over our own destiny.”

“A partnership, whilst it might de-risk, does dilute that strategic rationale. If one follows the rationale... one would conclude that partnership would not be a preferred option.”

Clearing houses stand between trading parties to guarantee obligations if there is a default.

LME trades are currently cleared by Europe’s largest independent clearing house LCH.Clearnet, but the exchange has said the clearing house may not be best placed for the job.

In its May statement, the LME said LCH’s diminishing portfolio and its focus on the growing over-the-counter derivatives market could be detrimental to the exchanges for which it still clears.