LME nears verdict on Ring closure after trader uproar

The London Metal Exchange’s historic trading Ring is no stranger to shouting. Now the discussion over its future is generating a fittingly noisy debate.

Traders have launched a strong pushback to the LME, which proposed a permanent closure to the more than 140-year-old trading venue in January. On Friday, the exchange said it would decide its future in June, having received “unprecedented” feedback from its members, with a total of 192 formal responses to its consultation on the matter.

The tussle reflects traders’ strong nostalgic attachment to the last open-outcry trading venue in Europe, but also a debate on the benefits of flexibility set against the LME’s desire to create a more computerised “metals market that is fit for the future”.

“The LME acknowledges that market participants would like the outcomes of the process to be communicated as soon as possible in order to provide certainty to the market, but it is also balancing this with ensuring that all the feedback is given careful consideration,” the exchange said on Friday.

The LME is the world’s centre for metals trading, providing prices for industrial metals such as copper, zinc, lead, tin and aluminium. This year the exchange is set to launch trading for lithium — a key metal for electric-car batteries.

The LME has said that closing the Ring could improve pricing and bring in new members more accustomed to trading commodities electronically, such as hedge funds and high-speed traders.

But many traders say the LME’s electronic pricing system is not good enough to handle the complicated physical metal trades that are the foundation of the LME’s unique trading system.

Traders on the Ring gather on and around its famous red sofas and use shouting and hand movements to execute bespoke orders for metals customers, allowing them to hedge prices for specific dates in the future, rather than the fixed monthly and quarterly points that are more common in other commodities. For more than a century, the Ring has been the key to the settlement of the LME’s benchmark daily closing prices.

But the venue has been closed for more than a year because of Covid-19. The LME said on Friday that it would not reopen until it had more clarity about easing of social-distancing measures in the UK as well as the progress of vaccines.

It added that a later reopening would minimise any disruption caused by a decision to retain or permanently close the Ring.

Trading revenue at the LME fell by $53m, or 17 per cent, in the first quarter from a year earlier, according to the LME’s owner Hong Kong Exchanges and Clearing. Volumes of metals traded were down by 21 per cent, the exchange said in its first-quarter earnings results.

The slow decline of floor trading

1998

‘The Battle of the Bund’ leads to Germany’s Eurex exchange seizing the market for futures on the country’s long-term debt from London rival Liffe. The contracts had been traded by ‘open outcry’ in the UK, but traders preferred the electronic version because it could be more easily traded remotely, and it shifts en masse.

2001

Intercontinental Exchange, then a small start-up, makes waves by buying London’s International Petroleum Exchange (IPE), where most volume was traded on the floor. Taking its cue from the Battle of the Bund, ICE built a modern electronic platform.

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2005

ICE announces the closure of IPE’s pits, turning energy futures contracts such as Brent crude fully electronic. Weeks later IPE’s then-larger rival, the New York Mercantile Exchange (Nymex), unveils plans for an open-outcry pit in London.

2006

Nymex abandons its plan to reintroduce floor trading in oil contracts after little interest from traders.

2012

Intercontinental Exchange ends 142 years of history by shutting the soft commodity trading pits in New York as volumes dwindle, in favour of electronic trading.

2015

After 167 years, CME shuts most of its trading pits in Chicago and New York. Open-outcry trading had fallen to just 1 per cent of total futures volume. That decision includes the Nymex open-outcry futures pits, which CME bought in an $8.9bn deal seven years earlier. Only pits connected to some options remain open.

2020

Coronavirus forces CME and Cboe Global Markets to shut their trading floors in Chicago, but they reopen over the summer. Among the precautions, traders have to submit to health checks and wear face shields in the pit.

2021

London Metal Exchange to consult about closing its open-outcry Ring after trading was halted by the pandemic.