REFILE-Bank of China moves closer to LME membership

Mon Feb 20, 2012 11:54am EST

* Gets approval for commodities unit from UK regulator

* Chinese involvement seen boosting volumes amid bids for
LME

By Eric Onstad

LONDON, Feb 20 (Reuters) – Bank 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.