* LME says seriously considers move, needs public discussion
* Existing clearer LCH.Clearnet says it best suited for task
* Start up costs may be an obstacle
(Recasts, adds detail, market reaction)
By Melanie Burton
LONDON, May 3 (Reuters) - The London Metal Exchange is considering building its own clearing system, it said on Tuesday, a move market participants said could help it boost earnings although it would incur significant start up costs.
At present the 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. "The LME is giving serious consideration to the possibility of building its own clearing house... we have reached the point at which deeper examination of the issues requires some discussion in the public arena," the LME said in a notice to members.
"We believe self-clearing would also be accretive to earnings at the LME," it added.
Among advantages that the LME might be considering would be the integration of operations, revenue generation and the ability to launch new contracts, market sources said.
"At the end of the day, it is money," said one senior source at an LME ring dealer.
"The LME is trying to generate more profit in the interest of their members. I don't think a lot of it could be done through trading, so one of the very few areas they haven't looked in is the clearing," he added.
Others the start-up costs may prove too tall a hurdle to jump for the LME, where metals including copper, aluminium, nickel and zinc are traded.
"The big question for us is how would the LME finance the creation of such an entity?" said analyst Nic Brown at Natixis.
"A substantial amount of capital would be required, but if this was expected to come from LME members, some may be less than enthusiastic about the prospect," he said.
"This raises serious questions about both the viability and likely timetable of such a proposal."
The LME's 2009 financial statements, the latest available, show the LME posted a profit of 13.56 million pounds ($21.8 million) and revenue of 43.59 million pounds.
Last year, when metals prices rose strongly, 120.3 million lots were traded on the LME at a total notional value of $11.6 trillion, up by around 60 percent from the year before.
LCH.Clearnet said that it had a long relationship with the LME and with LME market participants, for whom it remained the top choice for clearing.
"LCH.Clearnet has not received notice from the LME or indeed any indication regarding the likely timeframe," it said in a news release.
"Market participants tell us they are looking for proven, efficient and consolidated clearing offerings. LCH.Clearnet is best placed to continue to deliver this." (Additional reporting by Pratima Desai. Reporting by Melanie Burton; editing by Anthony Barker)