Published On: Wed, Feb 22nd, 2012

Bank of China Moves Closer to LME Membership

Li Li Hui BOCI ChairmanBank of China International (BOCI) is on track to become the first Chinese member of the London Metal Exchange – giving the bourse a boost while it is considering possible takeover bids – following authorisation by the UK financial regulator.

The addition of a Chinese member to the world’s biggest metals market is expected to increase trading volumes, which would increase the LME’s attraction as a takeover target. China is by far the world’s largest consumer of metals and other industrial raw materials.

The 130-year-old metals bourse said on Friday it had received a “good number” of first-round bids ahead of an LME board meeting on Feb. 23.

BOCI, the investment banking subsidiary of the Bank of China Ltd , one of the country’s top four banks, has gained approval by the UK Financial Services Authority for its global commodities unit in recent weeks, according to the FSA Register.

FSA authorisation is a necessary step for BOCI’s application for category two LME membership, which would give it access to all types of exchange business except ring trading.

The bank still needs approvals by the LME and clearing house LCH.Clearnet and also must purchase LME shares before it can begin trading.

BOCI’s London office was not immediately available to comment, and the LME declined to comment, but an industry source said the bank was expected to get LME approval by April.

For brokerage houses in London, the benefits of an enlarged market are likely to outweigh any market share lost to the newcomer, analysts and market sources said last year.

BOCI is likely to be the only Chinese bank to get LME membership in the near future since it is the most assertive of China’s four state banks and is ahead of its peers in building up a commodities trading business, analysts have said.

BOCI plans to kick off an iron ore swaps business this year in a bid to tap growing demand for hedging from Chinese steel mills, two sources familiar with the matter told Reuters in November.

One of the sources said the bank plans to apply for clearing membership in the Singapore Exchange, which handles the bulk of globally traded iron ore swaps volumes. BOCI was approved last year as a clearing member of the U.S. CME Group, which also clears iron ore swaps.

Source: Reuters

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