Macquarie, Orion quit metals warehousing after 3 years - source

(Adds details on sale throughout, background and context)

NEW YORK, June 30 (Reuters) - Australia's Macquarie Group Ltd and Orion Mine Finance have sold their stakes in the small British metal warehousing company, Scale Distribution, a source said on Thursday, the latest firms to quit the business as regulation crimps profits.

The sale ends a three-year foray into the lucrative storage business, highlighting how tougher regulatory oversight and sweeping rule changes by the London Metal Exchange have made it harder for warehouses to capture the fat profits that lured merchants and banks like Glencore (Xetra: A1JAGV - news) , Goldman Sachs Group (Swiss: GS.SW - news) Inc into storage in 2010.

Dave Day, a minority shareholder and founder of the company, will retain the company's storage sheds in Britain and the company name, the source familiar with the situation said.

A company called Metal Ox Warehousing is running some of Scale's U.S (Other OTC: UBGXF - news) . warehouses, the source said. The company is approved to store aluminum and zinc in the CME's network.

The buyer is not known.

Macquarie declined to comment and Orion (LSE: 0M2N.L - news) did not respond to requests for comment.

Three executives from the two companies have left the board of Scale, according to a filing with Companies House, the United Kingdom's business registry, on Thursday.

They are Paul Plewman at Macquarie, Oskar Lewnowski, who founded Orion, a mining fund spun off from metals hedge fund Red Kite and another Orion executive Peter Rozenauers.

For Macquarie, the retreat comes as the bank has sought to beef up its presence in commodities trading in recent years, unencumbered by the tighter regulations that have forced U.S. rivals like JPMorgan Chase (Swiss: JPM.SW - news) and Morgan Stanley (Xetra: 885836 - news) to exit from the volatile and lucrative market.

The sale comes a month after Scale pulled out of offering storage in the LME's vast network, the world's biggest base metals market. Trafigura exited base metal storage business last August.

New LME rules aimed at placating years-long criticism over long wait times to take delivery of metal have made it harder for warehouses to reap hefty margins.

Scale expanded from having just one location in Liverpool, England into the United States after being bought by the bank and the fund in 2013.

But it is still tiny compared with its bigger rivals like Glencore's Pacorini and independent C Steinweg.

According to 2014 results, the most up-to-date accounts available, shareholders' funds totaled 630,914 sterling, almost double a year earlier. (Reporting by Josephine Mason; Editing by Bernadette Baum, Bernard Orr)