Barclays Quits LME Floor to Trade Metals on Screen
The London-based bank became a Category 2 member of the exchange with immediate effect, meaning it will continue to trade electronically and by telephone, the LME said in a notice to members today. Barclays remains “deeply committed” to the metals market, it said in a statement today.
Barclays’ withdrawal leaves 11 companies still in the LME’s 6-meter-wide (20-foot) ring, London’s last venue for open-outcry trading. Natixis SA also stopped floor trading in July to become a Category 2 member, and Jefferies Group Ltd. joined in September, hiring traders from the French bank. Barclays Chief Executive Officer Antony Jenkins is reviewing which parts of the bank will be sold or shrunk as it seeks to bolster returns.
“They’ve probably decided this function isn’t critical,” said Ian Gordon, a London-based analyst at Investec Plc who recommends buying shares of Barclays. “Is it a continuation of the cost cutting program? Yes, probably.”
The 135-year-old LME handles more than 80 percent of world trade in industrial-metals futures. Its shareholders, including Barclays, approved a $2.2 billion takeover by Hong Kong Exchanges & Clearing Ltd. in July. The transaction is expected to close by the end of the year, LME CEO Martin Abbott said earlier this month. Barclays will get 32.3 million pounds ($51.5 million) for its stake, data compiled by Bloomberg show.
The bourse’s trading volume will rise to a record for a second consecutive year in 2012, Abbott said Oct. 15. The exchange handled 146.6 million contracts valued at $15.4 trillion in copper and other industrial metals last year. Its Category 1 members include JPMorgan Chase & Co., Marex Spectron Group and Sucden Financial Ltd.
“The ring is still an important issue,” said William Adams, an analyst at Fastmarkets.com in London. “The more people there you have the more liquidity you have. If a large player drops out then that has an impact.”
There are now 28 Category 2 members, including Goldman Sachs Group Inc., UBS AG, Standard Chartered Bank Plc, Standard Bank Plc and ICAP Plc.
“We recognize that business models change and we are pleased that Barclays Bank remains deeply committed to the LME and the base metals markets,” Abbott said in a statement today.
Cengiz Y. Belentepe manages Barclays’ industrial and precious-metals trading. Barclays offers commodity futures and over-the-counter precious metals trading via its BARX FX platform. The bank opened its first precious-metals vault this year and moved into warehousing in 2011.
Barclays’ investment banking chief, Rich Ricci, said last month he will combine part of the fixed income and equities operations, his first change since taking sole control in June. The trading and distribution teams in fixed income, commodities and currencies and equities will be put into a single markets business led by Eric Bommensath.
Barclays’ corporate and investment bank cut more than 500 million pounds of expenses in the past 18 months, Ricci said in September. The bank would review products and services that are no longer appropriate, regardless of financial return, he said.
The bank was fined a record 290 million pounds in June by U.S. and U.K. regulators for manipulating the London interbank offered rate, leading to the departure of former CEO Robert Diamond, the chairman and the bank’s chief operating officer.
Last month, the lender said fixed income, commodities and currencies revenue rose 10 percent to 1.58 billion pounds in the third quarter, missing analyst estimates. Trading in October continued “to be affected by the challenging economic environment and subdued market volumes,” it said.
Barclays and JPMorgan became top players in global commodity-derivatives trading, a Greenwich Associates survey found in March. The two tied with Goldman in the share of clients who used them for over-the-counter energy derivatives trades, while among executives who use derivatives to hedge metals prices, 35 percent chose Barclays, according to Greenwich Associates.
Barclays lost Roger Jones, the bank’s former global head of commodities, and four other energy traders to Mercuria Energy Trading SA from March 2011 through June 2012. At least six more Barclays traders left for companies including UBS AG and Noble Group Ltd.
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