London Metal Exchange to push for reform after US judge dismisses suits
London exchange granted immunity from claims that it conspired to push up aluminium prices
The end of class action lawsuits in the United States against the London Metal Exchange will open the way for a long-promised reform of the aluminium warehousing issue and allow the bourse to focus on its expansion in Asia, according to brokers.
An LME spokeswoman told the the London-based commodities exchange was pleased to have been granted immunity from the aluminium class action lawsuits and would continue to carry out its warehouse reform plans.
"The court has recognised the important regulatory function which the LME performs and that the LME has a duty to the entire metals community to run a fair and orderly market," she said. "We continue to take action to manage queue-related issues in accordance with our obligations and we remain committed to do everything in our power to remedy these issues."
In a decision made public last week, a district judge in New York dismissed LME as a defendant from class action brought by metal users.
The court concluded the LME was an "organ" of the British government and therefore immune from the lawsuit under the Foreign Sovereign Immunities Act.
The LME in August last year was accused to have conspired with some banks and warehouse owners since May 2009 to drive up the prices of aluminium by hoarding supply, causing delays, known as queues, of up to 16 months to fill orders.
Established in 1877, the LME was bought in December 2012 by Hong Kong Exchanges and Clearing, making the latter a party to the lawsuits.
The HKEx yesterday announced that the US court on Friday dismissed the lawsuits against it and other defendants in the case.
"It is good news that the US lawsuits against the LME and HKEx have now all been cleared. This would allow the LME to focus on its warehouse reforms and its Asia development plans," said Christopher Cheung Wah-fung, the legislator for the financial services sector.
The US court ruling is the newest legal victory for LME. In May, a court in England allowed the LME to challenge a lower court's ruling against it, in a case brought by Russian aluminium giant Rusal to block the exchange's plan to reform its warehouse policy.
The reform announced late last year was aimed at giving industry players easier access to stock from its approved warehouses worldwide and cutting waiting times by up to 100 days.
Cheung said this would be a good time for the LME to carry out its warehouse reforms to shorten the queue to compete for more business in light of the Qingdao port warehouse scandal.
The mainland authorities started in May a fraud investigation into whether the same metal cargo stored in Qingdao port had been pledged multiple times for loans.
"The Qingdao port scandal has exposed the weakness of the mainland metals and the related financing system. Metal users may shift to use more of the LME warehouses, which are more reliable," Cheung said.
Haywood Cheung Tak-hay, the president of the Chinese Gold & Silver Exchange Society, said the dismissal of the US lawsuits would allow the LME to focus on its warehouse reforms and promote alliance with the mainland bourse.
"Mainland China is now the world's largest metal consumer. The future of the LME relies on whether the bourse can tap the growth of mainland customers through alliance with the mainland bourse or to introduce more commodity products for trading in Hong Kong," Haywood Cheung said.
LME chief executive Garry Jones in April said high-level talks were under way to form a potential alliance between the LME and the three mainland commodity exchanges in Shanghai, Dalian, and Zhengzhou.
