Once exchanges went from member run non for profit entities, to for profit shareholder run entities, the stakes of the game changed. For years, the CBOT and CME ($CME) would date each other and talk about a merger. It made perfect financial sense. It wasn’t until after each exchange went public that a real merger could happen.
In LME‘s case, they have an established business with very long term network effects. Like other exchanges, they changed their corporate structure. Unlike other exchanges, they didn’t offer their shares to the public markets. However, they offered stakes to other well heeled investors. Sort of like a Private Equity play in a way.
JP Morgan($JPM) is the largest shareholder, with a 4.7% stake.
One thing that no one really foresaw is that the old line network effects that were established over decades of time in the open outcry markets would re-establish themselves in the computerized era. Once an exchange becomes the go to place for a contract, it is virtually impossible to wrest control of it and take it to another exchange. For game theorists, it is a great academic ground to test theories. It seems established contracts are in some sort of Nash equilibrium.
There is pressure on LME to allow investors to monetize their investment. Outside pressure also exerts a force. New banking regulations that will force banks to raise capital are making those same banks counsel the LME to bring a liquidity event to the table. Banks are carrying loads of bad debt on balance sheets. Selling off assets that are not core to their business is a compelling idea to raise needed cash.
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