The open-outcry pit at the London Metal Exchange in London.
The London Metal Exchange will propose permanently closing its open-outcry trading floor, putting an end to the century-old practice of setting the world’s metals prices in a daily shouting match.
The iconic trading floor known as “the Ring” is one of the last of its kind in the world, where deals take place face-to-face, in a chaotic daily ritual of barked commands and arcane hand gestures. It’s been closed since the U.K.’s first Covid-19 lockdown in March, when the LME switched to an electronic system for establishing the world’s benchmark prices for industrial metals including copper, aluminum and zinc.
The 10 months of smooth operations since then have revived a years-long debate about whether the Ring has outlived its usefulness, undermining the argument that it was the only way that prices could be established for the LME’s complex system of contracts.
The LME will issue a discussion paper later today in which it proposes the permanent closure of the ring, according to a person familiar with the matter.
A move to close the LME ring would shutter one of the City of London’s most historic institutions at a time of heightened uncertainty for the financial center due to the fallout from the U.K.’s exit from the European Union. The Ring has deep roots in the physical markets, and its supporters argue that, while membership has diminished, the Ring serves the global metals industry as well today as it did in Victorian times.
Read more: Trading Ring That Survived Two World Wars May Succumb to a Virus
But to some outsiders, the trading floor has also become a symbol of the glacial pace of change in parts of London’s financial sector.
Some floor dealers have already been investing heavily in electronic trading platforms, but closing the floor entirely would place them more squarely in competition with highly sophisticated algorithmic traders on the one hand, and vastly better capitalized banks on the other. The stakes are high for the LME too, as rival exchanges will likely see an opening to lure users of the Ring on to their own electronic platforms.
The fraught debate over how long the Ring can and should survive has raged for years, right from the creation of the LME’s electronic market in the early 2000s, through to the LME’s takeover by Hong Kong Exchanges and Clearing in 2012 and during a user revolt over efforts to modernize the bourse in 2015.
But the greatest threat yet has come from the Covid-19 pandemic, which forced some of the floor’s largest dealers to consider drastic changes to their businesses. While some concede that closure may be inevitable, dealers and LME executives had said they were exploring all options to restart trading in a safe and sustainable way.
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January 19, 2021 at 05:44PM
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London Metal Exchange May Permanently Close Iconic Trading Floor - Bloomberg
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