London Metal Exchange, eyeing CME, seeks big jump in trade fees

* LME to publish 2015 fee schedule on Monday
* Owner HKEx to boost fees to make takeover profitable
* LME fees 73 pct lower than rival CME - fund manager

The London Metal Exchange (LME), looking to boost profits, has scope for a significant hike to its trading fees whilst remaining competitive with arch U.S. rival CME Group .

The LME had warned of hefty increases when it publishes its new fees schedule for 2015 on Monday, but has kept the details under wraps.

The move will be another key step by the LME's owner, Hong Kong Exchanges and Clearing Ltd., to wring profits from its pricey $2.2 billion takeover of the world's biggest industrial metals market.

Before the LME's sale in December 2012, it was owned by the banks and brokers that used it and therefore trading fees were kept very low for members.

HKEx promised when it was bidding for the LME that it would freeze the low fees during an initial period, but the moratorium will expire in January.

Executives have been preparing the ground for a hefty increase, including HKEx Chief Executive Charles Li at a results presentation last month.

"The market knows and I don't think the market is going to be that happy about it," he said. "I can't tell you whether that's going to be a 20 percent increase, 30 percent increase or 50 percent increase..."

RIVAL CME

The LME, in setting the fees, is likely to keep a close eye on remaining competitive with the CME.

Although the LME still controls the vast majority of industrial metals futures trading, its U.S. rival has been carving out a growing share of the global copper market with its Comex contract and in May launched a new aluminium contract in a big push to grab some of London's $51 billion market for the metal. 

But due to the legacy of low fees, the LME has broad scope to boost revenue from that area and still remain competitive.

Exchange fee schedules are complicated, but one fund manager said the gap was huge between the fees he is charged for trading metals on the two rival markets.

Comex trading fees come in at an equivalent 73 percent higher than the LME, not including clearing fees, he said.

That would mean that the LME could increase fees by 50 percent and remain cheaper than its U.S. rival.

The LME declined to comment on how its fees compare with the CME.

Brokers say any fee hike will be difficult since the cost of trading has already soared due to additional costs from new regulations.

"This is a tough business to remain in," said an executive at a major LME broker, who said a rise in margin requirements and clearing costs was already hurting profits.

An executive at a major bank that trades commodities said he reckoned that total costs for trading on the LME could triple.

Initial grumbling would be expected, but users would have to accept the hikes, said analyst Robin Bhar at Societe Generale.

"At the end of the day people have to trade, consumers and producers have to hedge, so they will probably have to swallow those charges," he said.

"If the LME is still seen as competitive against other exchanges, then one could argue that they've been too low in the past."