The London Metal Exchange (LME) has made a formal proposal to the Baltic Exchange to establish a new exchange, it was announced on February 19. The aim of an eventual deal would be to bring in trading in forward freight agreements (FFAs) on the exchange.

The Baltic Exchange and its members will be invited to consider taking an equity stake of between 25% and 50% in the new exchange, which the LME hopes would be a Regulated Investment Exchange (RIE).

The LME has proposed to provide transparency and efficiency to what it says is an opaque market over-the-counter (OTC). It also wants to offer the dry-bulk FFA market a platform with robust technology.

FFA trading can now only be done over the telephone OTC market. The LME says that in its present form it is “constrained from future expansion”.

The LME said that the new venture will benefit from its proven electronic trading capabilities and attract substantial new long term volume and liquidity growth in FFA trading.

There have been talks about a deal for some time now and an LME spokesperson said that the proposal was “A formalisation of informal discussions” rather than a detailed proposition.

The Baltic Exchange does not have RIE status.

Sian Williams +44 207 779 8370 swilliams@fow.com