London Metal Exchange cancels £25 million a year Xchanging contract

London Metal Exchange (LME) has cancelled its business process outsourcing contract with Xchanging worth £25 million a year , in a ‘significant blow’ for the services firm.

Xchanging was initially awarded a three year £75 million contract renewal in January 2012, to provide technology infrastructures services to LME, with the option of a further two year extension.

However the services provider announced on Monday that its contract with LME is to be terminated, following a contract review announced in last month.

Under the terms of the renewed contract, LME agreed to provide at least 12 months notice before any termination of services should there be a change of control at the company.  Consequently, this means that the current agreement will come to an end on 1 May 2014.

Xchanging said in a statement yesterday that the contract termination was directly linked to the recent buy-out of LME by Hong Kong Exchanges and Clearing (HKEx). The $2.2 billion (£1.42 bn) deal was completed in December.

The service provider said that the decision to end its contract was purely due to the HKEx acquisition, rather than being related to its own performance.

“Xchanging understands that the decision to review the contract is due to strategic decisions taken by the LME's new owners and not in any way due to dissatisfaction with the service Xchanging provides,” the statement read.

Xchanging indicated that it is currently undergoing negotiations with the exchange for further works, though these are likely to be on a “substantially smaller scale” than the current contract.

Xchanging had provided the LME with transaction processing systems since 2005, in a partnership that it said enabled the exchange to achieve a “ten-fold” increase in electronic trading volumes, as well as assisting in moving into new markets. The scope of the contract involved support in processing deals made through the exchange, as well as conducting backup and back office work.

A spokesperson for Xchanging labelled the decision “disappointing’ but highlighted the praise that LME had given the firm in the past for its service levels, and said that any loss of profit as a result could be offset by other initiatives across its business.

"We have done fantastic things for them over the years. It is all rather disappointing, but that is life when there is a change of ownership. It is not a UK business [taking over LME], it is someone in another geography who may not be close to us and the services we provided for the London Metal Exchange."

“Obviously there is a change of control and when that happens the new owners quite often want to review how things are done.  It is quite common for contracts to have a change of control clause.”

“We are still in discussions with them, what we have said is that if there are residual contract afterwards they are going to be smallish, it is not going to be significant. It is early days to know what those might be, if anything at all.”

Computerworld UK approached the LME, but a spokesperson declined to provide comment on the Xchanging or any future deals.

Commenting on the announcement John O’Brien, Research Director at TechMarketView, said that the termination of £25 million a year deal, equivalent to around 4 percent of Xchanging’s 2012 revenues, was a blow for the firm.

“It is a significant blow to Xchanging and its ambitions in infrastructure services, and it will no doubt now result in cutbacks within the operation. We suspect there will also be plenty of Xchanging’s competitors knocking on LME’s door right now.”

Copyright © 2013 IDG Communications, Inc.

Shop Tech Products at Amazon