The arrival of Martin Abbott as the London Metal Exchange's new chief executive last week may herald more radical changes at the last of London's open outcry trading floors, analysts said.

"In Abbott, the exchange has gone very much for a person who will be an agent for change. He gave the exchange a good shake-up when he worked there as marketing director and I can't see why he will be any different now," independent analyst Angus MacMillan said.

Among the key issues facing Abbott will be whether to take the world's largest metals market on a path towards a profit-based model and a public listing.

Currently, the LME operates on a not-for-profit basis, where it charges minimum fees and any surplus is returned to its member-owners.

But in May, the exchange split its shares into two classes: A shares that confer ownership and voting rights and B shares that only allow a holder to trade on the exchange. That, analysts say, might have been the first step towards an initial public offering (IPO).

Andrew Mitchell, analyst at Fox-Pitt Kelton, said: "The question is whether the exchange is moving towards a profit-based model.

"We have seen more and more exchanges moving from a mutually-owned basis to a profit model and eventually to listing. That involves a significant change from a service-oriented culture which serves members to one that tries to maximise returns for shareholders."

The exchange is in the midst of a review of its status but is reluctant to discuss the direction of the review.

Abbott, who started at the exchange on Monday, was unable to comment, while the outgoing Simon Heale said: "Whenever the LME does something, 35 member firms come up with 40 different theories.

"What we do is designed to be in the best interests of the exchange." On the subject of an IPO, he said: "There is no agenda there."

An LME spokeswoman said the exchange was developing proposals to maximise the long-term economic value of the exchange and also serve the interests of users.

Analysts said exchanges, from an investor's perspective, were attractive targets. "The exchange space has proved a popular sector with investors as exchanges give you a combination of good cyclical and structural growth," exchange analyst Bruce Hamilton at Morgan Stanley said. "They have relatively capital-light business structures, leading to good cash flow generation and the potential for consolidation over time. All of those things could apply to the LME."

He said the LME, although a niche market was a very strong brand and was operating in a hot sector. Should the LME take the route towards an IPO, it would attract plenty of interest. "The LME is a smaller exchange but it is strong in its area of operation so it could be interesting as a quoted entity. Most exchanges will look at any new entrant to the quoted universe and many would consider the LME as a potential partner," Mitchell said.

Another market watcher said: "Whether the members give up their ownership rights will depend on the incentives. When exchanges list either they are swooped upon by a predator or, if they are suitably capitalised, will go on the hunt themselves."

Another challenge facing Abbott and the LME is increasing competition from other exchanges.

Its two main competitors are the Comex division of Nymex in New York and the Shanghai Futures Exchange, but exchanges in Dubai and India are also expanding their commodity product line-ups.

"Every week that goes by sees more and more viable competition for price discovery," a metals trader said. "The London Stock Exchange has launched its exchange-traded commodity products, we hear Dubai is launching more commodities and Mumbai is almost certainly launching more commodities."

Source: Reuters

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