The LME expects a big uptake for the service launched last week that expands the range of allowed collateral to warrants - ownership documents for metal stored in LME-approved warehouses, said Adrian Farnham, chief operating officer of LME Clear.

"A lot of our members have wanted the clearing house to provide this service for a long time," he said. "We already have had 15 or 20 firms testing the system."

LME Clear is the world's first clearing house to allow warrants to be used as collateral, for which it charges fees.

The 138-year-old LME has been seeking ways to boost profits since Hong Kong Exchanges and Clearing Ltd (HKEx) bought the exchange for $2.2 billion in 2012.

LME Clear also kicked off last week a service called "compression", which allows financial institutions to reduce balance sheet exposure to metals positions.

This is especially important for banks, which have been forced by regulators to increase the amount of capital they hold since the global financial crisis.

Compression software enables members to reduce exposure when a futures contract for the same date has been bought and sold.

Currently, even though the net exposure might be close to zero, both contracts are regarded as legally open in terms of banks' balance sheets.

"What compression allows members to do is ... to tear up the long and short and replace it with whatever the net remainder is," said Farnham.

"When we look at a normal member's or member's client portfolio, we can often give a 90 to 98 percent reduction in gross value for a particular prompt date."

LME Clear will charge 50 basis points for using warrants as collateral and 3 cents a lot for compression.

The LME, the oldest and biggest market for industrial metals, is expected to recover the investment spent on setting up the new systems in a year or two, Farnham added.

Farnham will take over as LME Clear chief executive on Jan. 1 from Trevor Spanner, who will become chief operating officer of HKEx.

(Reporting by Eric Onstad; editing by Susan Thomas)

By Eric Onstad