U.S.-based broker INTL FCSTone will buy the entire UK metals unit of defunct broker MF Global Holdings, including its people and London Metal Exchange (LME) ring-dealing seat, securing a significant role in metals with a single deal.

It said on Friday the purchase comes with MF Global's mostly London-based team of 50 people, including its head of metals Fred Demler, who will now lead FCStone's global metals LME futures and derivatives business.

This was too good an opportunity, said a source familiar with the situation. They've made a quantum leap (in expanding the metals business), but it's difficult to take on without the facilities MF Global had.

FCStone, a Fortune 500 company, is one of six futures commission merchants selected to take the accounts of MF Global in the United States since it filed for bankruptcy protection on October 31.

MF Global had been mismanaged but the underlying (metals) unit should be good business, said Fairfax analyst John Meyer.

FC Stone also becomes a Category One ring-dealing member of the LME, giving it the right to trade on the LME' open outcry floor, one of the world's last, and fill the booths on the trading pit left empty since MF Global's demise.

The move is seen as a vote of confidence in the LME's open outcry trading, as it prepares to open its books to potential suitors who could possibly try to shut the ring in favour of more electronic trading.

It's very encouraging, said Peter Childs, LME's head of price discovery. It's certainly good for the ring, it's good for the LME as a whole and its users, and it's good to get back up to capacity again on the ring, with 12 members.

FC Stone has been adding muscle in the metals business, having bought UK-based broker Ambrian Commodities in April and got approval to be a Category 2 member of the LME at the end of September.

I'm not really surprised. We're at a place where investors and companies want to be overweight in commodities, said a trader at a Category One member.

For the floor it's good, it shows it's still valued enough for someone to want to take on a team. Category 1 (members) have an advantage because we hear things faster, we're lucky to have a floor.

BRISK COMPETITION

Competition for MF Global UK's metals assets has been brisk, with trading volumes on the LME hitting records and some shareholders jostling to shore up interests ahead of any potential sale.

On Wednesday, administrators KPMG said J.P. Morgan had won a bidding process to buy all of MF Global's shareholding in the LME, increasing its stake to become the biggest shareholder.

J.P. Morgan, also a ring-dealing member, now has stronger input into any changes proposed by suitors while making a profit from any sale, but retains the option to team up with others to block a takeover, analysts and industry sources said.

Any of the exchanges that could mount a successful bid (for the LME) would likely want to go electronic and close the floor, Credit Agricole analyst Robin Bhar said.

With JP Morgan increasing its stake and now FC Stone entering, hopefully it gives some opposition to that plan.

(Additional reporting by Maytaal Angel and Harpreet Bhal; Editing by Anthony Barker)