After 144 Years, London Metal Exchange Proposes Closing Trading Ring
January 19 2021 - 9:31AM
Dow Jones News
By Joe Wallace
LONDON -- The London Metal Exchange is proposing closing its
open-outcry ring, where traders have swapped metals like copper and
lead using shouts and hand signals for 144 years, in a bid to
attract more financial players.
The LME temporarily closed the ring when Covid-19 ripped through
the U.K. in March, judging the tight circle of red couches that
dozens of traders crowd around to be a health risk. The exchange,
owned by Hong Kong Exchanges & Clearing Ltd., is now proposing
shutting it for good.
The ring began life when the LME was founded above a London hat
shop in 1877, though its origins date to sawdust circles around
which merchants bought and sold metals in the early 1800s, when
they were in high demand as the industrial revolution gathered
steam. It survived two world wars, the decline of the U.K. as the
world's leading industrial economy and the rise of China as the
largest metals consumer.
However, the coronavirus pandemic may prove to be a test too
far. The LME said Tuesday that electronic pricing had served the
market well during the pandemic and brought greater transparency
around the way that prices are set. It also said the closure would
attract a broader group of participants to the market, beyond the
physical-metal players that tend to favor the ring over the LME's
electronic platform.
If the change goes through, the LME would join CME Group's New
York Mercantile Exchange, which closed its open-outcry trading
floor in lower Manhattan in 2016. The LME said it planned to lay
out its next steps by the end of June after feedback from market
participants.
Since being bought by HKEX in 2012, the LME has worked to
attract more hedge funds and other financial players. Some have
been put off by the unique nature of LME contracts that cater for
the delivery of metals daily out to three months, rather than
monthly, as on the CME.
The ring has sometimes proved controversial, as the metals
industry has tried to clean up its image. In 2019, the LME banned
drinking on the job amid mounting criticism of an alcohol-fueled,
male-dominated working environment.
"The ring is a greatly treasured aspect of the LME's rich
144-year history, and its closure is not a decision we or our
market will take lightly," LME Chief Executive Matthew Chamberlain
said. "However, the LME has stood the test of time precisely
because of its ability to adapt to the evolution of market dynamics
and trading behavior."
Though much trading had migrated to the LME's electronic
platform before the pandemic, many market participants still routed
orders through ring members. Some thought that open-outcry remained
the best way to set closing prices that are used as reference
points in metal contracts globally, while electronic trading was
suitable for investors betting on the direction of copper
prices.
Nonetheless, brokers and traders say the shift to electronic
trading during Covid-19 has gone smoothly.
"It's more transparent, more reflective [of supply and demand],"
said Malcolm Freeman, chief executive of Kingdom Futures, who
started as a clerk at the LME in 1974. "What you would lose with
the ring going is a sort of community spirit."
Geoffrey Sambrook, who traded on the LME for three decades and
now publishes analysis of the metals market under the pseudonym
Lord Copper, said the proposal was inevitable and would likely be
welcomed by many.
"The world has got used to operating on a different basis now,"
Mr. Sambrook said, referring to the move to online working during
the pandemic.
Write to Joe Wallace at Joe.Wallace@wsj.com
(END) Dow Jones Newswires
January 19, 2021 09:16 ET (14:16 GMT)
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