Interest in joining the London Metal Exchange (LME) is soaring along with metals prices but proposals at a meeting on Wednesday to let in new members may not meet with unanimous approval, industry sources said.
A meeting of exchange members scheduled to begin at 10:30am London time will decide whether to approve the LME board's proposal to answer heightened demand for membership by creating 1 million new B shares in the leading global exchange for base metals.
The proposal comes at a time when what was once a niche market trading in industrial metals such as copper and aluminium has become popular in the wider investment community.
On top of this, the LME's recent decision to launch futures contracts for steel could attract a whole new industry to the exchange.
Applicants for LME membership must own 25,000 Class B shares in the exchange, but reluctance by some members to sell their excess B shares has been blamed for delays in new members being approved.
A second, and possibly more contentious proposal, also to be voted on, would empower the board to decide how to allocate the new shares, which might mean some members miss out on a chance to make money by selling the spare shares they already have.
"It's not as clear cut as it looks," one senior industry source said. "There is some hostility. The exchange will determine the price when they issue them. People aren't going to be happy if they are issued below the market price."
Shares Traded Double their Price
The shares last traded at 70 pounds per share, according to data on the JP Morgan Cazenove contributory page on Reuters screens, more than double their price when first made available last year.
"I'm getting the feeling most members are for it, but how the shares are allocated could be the sticking point, if any," another senior industry figure said.
"They are 70 pounds now, so if they are suddenly valued at a tenner people won't be happy," he said.
The 130-year-old exchange in London's financial district is one of the few remaining bourses where dealers can trade face-to-face in open outcry sessions -- also known as rings -- as well as electronically and by telephone.
Last month, industry sources said commodities merchant ED&F Man was applying to become the first new ring dealer in more than 10 years.
"My view is, if you've got excess shares you should have sold them. The point of them is to bring new members into the exchange, not to create a new asset class," the second source said.
The LME's stated aim is to double the volumes traded on it in three to five years. A central plank of this strategy is the introduction of steel futures contracts, which are due to begin trading in April 2008.
Both sources said a lot of the vote had been cast by post.
"Many people will already have voted, the LME probably already knows which way the vote has gone," the first said.