MAC: Mines and Communities

Is covid-19 shutting down LME face-to-face trading ring for good?

Published by MAC on 2021-04-05
Source: Kitco News

All trade is now being made over the phone or trough a digital platform.

Our earlier critiques of the London Metal Exchange have pointed out the veiled nature of a trading system that has operated for most of its long history in a peculiarly British opaque style. Whatever "reforms" are proposed by the exchange's elitist management, they are clearly aimed at self-preservation in the first instance.

The current attempt by LME afficionados, to rescue the old "open cry" system, would perhaps bear some value, had it ever been used to point out the inherent huge lack of power between a few gloriously-rich "haves" and those representing multitudes of impoverished "have nots".

See also:
2020-06-12 London Calling on a dubious LME initiative
2005-04-21 LME Fears EU Chemical Rules Could Clog Metal Trade 

Traders pushing back against LME plan to permanently shut down open-outcry ring

Rajan Dhall

Kitco News

March 26, 2021

The London Metal Exchange is facing backlash after the exchange's leaders issued a consultation document to participants, which included recommending permanently closing its open-outcry.

The traders have been used to making hand signals and face-to-face "ring" trading for a historic 144 years, but once the COVID pandemic hit, the exchange's managers temporarily closed the exchange. All of the trade has now been made over the phone or on their electronic trading platform.

Commenting on the proposed changes, the Chairman of Sucden Financial said, "It has just not been thought through and it has caused a breakdown of relations between the LME and its participants. It has come out of the blue.".

One of the reasons that the move is facing some revolt is the fact that traders can price futures for up to 10 years; this is highly irregular. No other market offers this service and it is valued by many participants, including car makers and other industrial firms.
It is not only brokers who are opposed to the move. German metal buying firm VDM stated, "only a surprisingly limited understanding of the functioning of its own market." when speaking about the LME.

Kevin Tuohy, who is now co-head of base metals at broker StoneX, commented, "Customers feel open outcry is the best way to transact certain types of business because you can access large groups of market makers to get the fairest price."

LME chief executive Matthew Chamberlain has responded to all the outrage by saying, "I have absolutely no problem with people expressing their heartfelt views."

He added, "The fact we are even putting this forward is a sign of how well everyone has worked together during the period the Ring has been closed," he said. "We feel electronic pricing has worked. The market has continued to operate."

Balancing the agreement, he noted, "Some people have said they prefer the Ring, but others have said they really like what is happening electronically.".

A trader from the Ring Jack Davis, the director of trading at Amalgamated Metal Trading, said, "You do need the ability to compute multiple tasks at the same time, for sure." On the recent move to online and phone trading, he noted, "The tinier trades are having just as much effect on the price as the big ones, and they shouldn't. They should not dictate the market."

He continued, "On a daily basis, you are seeing things that are just consistently out of line, out of synch, out of whack. They do not add up." and "If we don't bring in dramatic changes or bring back the floor, I don't see how we can continue guaranteeing a closing price to our clients like we have always done in the past. Now, it doesn't matter how much skill you use to execute the price. You are totally in the lap of the gods of the LME in the hope that someone else doesn't do something stupid."

A final decision has not been made, but traders are waiting for an update from the LME. Most of the major exchanges have moved toward this direction for some time and many are asking how long the traders at the LME can hold out.
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