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London Metal Exchange stands strong as bastion of outcry trading
February 5, 2015 / 3:33 PM / 3 years ago

London Metal Exchange stands strong as bastion of outcry trading

LONDON, Feb 5 (Reuters) - It’s long been the norm for financial traders to work from a bank of flashing screens, but there is one corner of London’s City where it’s still done the old way, with suited figures yelling and waving around a circle of red-leather seats.

The London Metal Exchange (LME) plans to hold fast as the last bastion of open outcry trading, even after the world’s largest futures market operator, CME Group Inc, said it would shut almost all its open-outcry futures pits by July 2.

The impact of CME’s move will stretch from grain and livestock pits in Chicago to gold and oil trading in New York.

In contrast, the 138-year-old LME, owned by Hong Kong Exchanges and Clearing Ltd, last June announced plans to invest 1 million pounds in technology for the “ring”, where deals are struck in intense five-minute bursts of yelling and arcane hand signals.

The LME is the world’s biggest market for industrial metals such as copper and aluminium, and participants say open outcry trading is alive and well there because of its continued use by mining companies and industrial users such as automakers to ship and take physical delivery of metal.

“The LME is a much more of a market rooted in its physical background than the CME, and therefore a more complicated date structure lends itself better to be transacted on the floor than the screens,” said Robin Bhar, head of metals research at Societe Generale in London.

While most futures markets have only one expiration date for each month, mining companies and industrial users love the LME’s structure, which allows them to hedge physical metal on any day during a three-month period.

“Users also like it because there’s a concentration of liquidity in the ring sessions,” Bhar said.

While the bulk of LME activity has shifted to electronic trading, the remaining ring trading is funnelled into short periods of activity when official prices are set.

Over the past four years, the amount of volume either traded in the ring or referenced to ring prices is 11-12 percent, the LME said.

The ring has its roots in the early 19th century when the Royal Exchange, the world’s first commodities market, became so crowded that metal merchants gathered at the Jerusalem coffee house on Cornhill in the City of London to conduct business. (Reporting by Eric Onstad; Editing by Kevin Liffey)

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