London, 10 June 2011: Reuters

CME Group Inc aims to expand its clearing service to over-the-counter base metals products in the United Kingdom, becoming the latest entrant in a developing race for a market seem growing due to regulation.

The London Metal Exchange is also considering building its own clearing system, it said in early May. At present members of the LME, the world's leading industrial metals futures exchange, pay for the task to be done by Europe's largest independent clearing house, LCH.Clearnet.

"Right now the listed models clear in the U.S. (with regards to) the OTC metals ... we have a few products, but we're broadening out that product set," Kim Taylor, managing director and president of CME Clearing, told Reuters on the sidelines of a conference in London.

"Some will clear in the U.S.; some will likely clear in the UK," she said. Since the financial crisis and the default of Lehman Brothers in September 2008, international regulators have pushed OTC market players to move to central clearing to increase transparency and reduce risk.

Clearing houses stand between the two parities to a trade to guarantee obligations if there is a default. Building on the base metals business it already has, CME aims to offer capital efficiencies between OTC metals markets and listed metals. Copper as well as precious metals trade on the Comex division of the Nymex exchange.

Capital efficiencies can include requiring lower margin payments for products that are highly correlated. Demand has sprung up for clearing services that allow assets to be kept in the same jurisdiction in which a company is domiciled, said Taylor.

"To (facilitate) that, we would be pursuing a link between our two clearing houses to allow the risk offset to happen, the U.S.-based product and the OTC product," she said.

The Chicago Mercantile Exchange opened CME Clearing Europe earlier this year, about one year after it applied to Britain's Financial Services Authority for approval. It clears mostly energy-related products and also freight. Copper, aluminium silver, gold, hot rolled steel coil and palladium are listed on the CME.

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