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London Metal Exchange to decide fate of iconic open-outcry ‘ring’

Jun 7, 2021

By Pratima Desai

LONDON (Reuters) – The London Metal Exchange will tell its members on Tuesday whether its iconic open outcry floor is to close for good, cementing the switch to electronic trading, a move strongly opposed by many of the exchange’s users.

The floor was closed in March 2020 for the first time since World War II to allow for the social distancing needed to deal with COVID-19, silencing its red ring of seats and accompanying theatre of arcane hand signals and frenzied shouting by traders.

In January, the world’s oldest and biggest marketplace for industrial metals launched a consultation on making the closure of Europe’s last open-outcry floor permanent, arguing that the forced migration to digital trading had been a success.

In its consultation paper, the exchange said an analysis of the trading data showed volumes on its electronic trading system between June 12 and Dec. 9, 2020 were significantly higher than ring volumes between Sept. 23, 2019 and March 20, 2020.

“That’s comparing apples with pears,” one head of a metals brokerage said, referring to the different time periods.

Brokers have said the data does not take into account electronic trading carried out alongside activity in the ring before its closure.

Commodities brokers Sucden Financial and StoneX Financial said the data the exchange used to support its plan to shut the floor for good exaggerated the increase in the use of electronic platforms during coronavirus lockdowns.

Many of the exchange’s floor members have experienced a significant trading volume drop for industrial metals including copper, aluminium, zinc, lead, tin and nickel since the ring closed.

The LME received 192 responses to its consultation, an unprecedented number. Sources at metal trading firms say the decision on closing the floor or ring was due to be announced at the end of April, but that it was delayed for unknown reasons.

“When they launched the consultation, I put the chances of the ring closing at 90%,” a senior executive at a metals trading firm said. “There seems to have been a mood change – I think the chances are now 50:50.”

LME trading fees fell 17% to $263 million in the first quarter of this year compared with the same period of 2020, a results update from parent Hong Kong Exchanges and Clearing (HKEx) showed.

“If they re-open the ring and volumes rise, then they can say they made the right decision. If volumes don’t go up, they can still close it,” the senior executive said. “The ring is already there. It doesn’t cost them anything.”

(Reporting by Pratima Desai; Editing by Veronica Brown and Jan Harvey)

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