LME open-outcry trade lives on as SocGen quit sparks no rush for exits
By Eric Onstad
LONDON, Aug 28 (Reuters) -The future of ring trading on the London Metal Exchange looks assured for now after almost all the firms involved told Reuters they remained committed to open-outcry trading at one of the last venues to still support it.
But with critical mass dropping towards the level at which LME management has said it would suspend the process after Societe Generale said last week it would no longer take part, its longer term outlook is less sure.
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 to conduct business.
In the 1980s, about 30 firms dealt in the LME ring, which features a circle of padded red leather seats for traders who use arcane hand signals during five-minute bursts of intense trading in copper, aluminium and other metals.
Now, just seven participants remain, and the LME has said the floor will close if the number of ring members falls below six, or if their trading in the second ring falls to less than 75% of last year's level.
The LME, owned by Hong Kong Exchanges and Clearing Ltd 0388.HK, said on Friday that trading volumes remain above the 75% threshold, but did not say by how much. It declined to comment further.
Several sources said high costs for ring-dealing firms and a global trend towards electronic trade threaten to undermine the minimum number of participants required to keep the age-old trading method afloat.
The loss of the ring, which involves four sessions of trading a day, would be a blow for miners and industrial firms that value floor trading.
They regard open-outcry dealing, used to crystalise official prices for physical deals using a complex structure of multiple forward dates, as absent of speculative influences.
For years, there has been tension between traditional physical users and the financial community that includes hedge funds, speculators and Commodity Trade Advisor investment funds and funds driven by algorithmic programmes.
Many long-standing users see a risk too that an excess of computer-driven speculative flows can distort prices that are key to deals in physical metal.
"It's that second ring close, the official price, that's void of algos, void of CTAs, void of specs, that still has an appeal," said Marc Bailey, CEO of ring-trader Sucden Financial.
QUESTIONS OVER VIABILITY
An outcry from physical LME users saved the ring three years ago when the 147-year-old LME proposed to close the trading floor and join the bulk of other financial exchanges that have moved to pure electronic trading.
The exchange argued that a temporary switch to full digital trading during COVID-19 proved that the ring was not essential.
But the LME eventually compromised and now operates on a hybrid basis, using open-outcry trading for official prices used by physical users as benchmarks for their deals and an electronic system for closing prices.
Longstanding questions about the viability of the ring resurfaced on Aug. 23 when Societe Generale SOGN.PA said it would drop the top-tier membership that allows floor trading.
A Reuters survey showed there is still a commitment to the ring for now by the bulk of existing ring members, backed by miners and companies that use physical metal.
"There are enough people that still want an independent price for physical trading," said Sucden's Bailey.
Marex Group MRX.O also said it would continue ring trading, while StoneX Financial SNEX.O said it had no current plans to change its approach to the ring.
Sources with direct knowledge said Amalgamated Metal Trading, CCBI Global Markets and GF Financial also planned to continue on the LME floor, while Sigma Broking declined to comment.
Ring members must bear the extra cost of having traders both in the office and on the LME floor, which can cost $1 million a year, one industry source estimated.
"It's expensive to maintain, but we're still making money from the ring," said an executive of a ring dealer who declined to be named.
SMALL PLAYER
SocGen was a relatively small player in the ring, and one LME executive estimated the company accounted for only 6% of open-outcry trading. An executive at an LME ring dealer said they expected its ring business to be redistributed to one or more of the remaining brokers.
Some LME members argue that electronic trading worked during COVID-19 and a full shift is inevitable.
"The writing is in the wall," said an industry source. "The ring is actually irrelevant, as those prices were compiled electronically during COVID and no one noticed any difference."
But the ring still has support. One executive at a European company that buys LME metals to make its products said the exchange should create a more viable ring by coming up with more cost-efficient solution.
"Without the ring, the LME is just another raw materials exchange," he said.
Reporting by Eric Onstad; Editing by Veronica Brown and Jan Harvey
අදාළ වත්කම්
නවතම පුවත්
වියාචනය: XM Group සමාගම් ක්රියාත්මක කිරීම පමණක් වන සේවා සපයන අතර වෙබ් අඩවියේ හෝ වෙබ් අඩවිය හරහා ලබා ගත හැකි අන්තර්ගතය බැලීමට සහ/හෝ භාවිත කිරීමට පුද්ගලයෙකුට ඉඩ සලසමින් අපගේ මාර්ගගත වෙළඳ පහසුකම වෙත ප්රවේශය ලබා දෙන අතර වෙනස් කිරීමට හෝ පුළුල් කිරීමට අදහස් නොකරයි. එවැනි ප්රවේශය සහ භාවිතය සෑම විටම (i) නියමයන් සහ කොන්දේසි, (ii) අවදානම් අනතුරු ඇඟවීම් සහ (iii) සම්පූර්ණ වියාචනයට යටත් වේ. එබැවින් එවැනි අන්තර්ගතයක් සාමාන්ය තොරතුරුවලට වඩා වැඩි යමක් සපයා නොමැත. විශේෂයෙන්ම, අපගේ මාර්ගගත වෙළඳ පහසුකමේ අන්තර්ගතය පෙළඹවීමක් හෝ මූල්ය වෙළඳපොළවල කිසිදු ගනුදෙනුවක් සිදු කිරීමට ඉදිරිපත් කිරීමක් නොවන බව කරුණාවෙන් සලකන්න. ඕනෑම මූල්ය වෙළඳපොළක වෙළඳාම් කිරීම ඔබේ ප්රාග්ධනයට සැලකිය යුතු අවදානමක් එක් කරයි.
අපගේ මාර්ගගත වෙළඳ පහසුකමේ ප්රකාශිත සියලු කරුණු අධ්යාපනික/තොරතුරුමය අරමුණු සඳහා පමණක් අදහස් කෙරෙන අතර මූල්ය, ආයෝජන බදු හෝ වෙළඳ උපදෙස් සහ නිර්දේශයන්; හෝ අපගේ වෙළඳ මිල පිළිබඳ වාර්තාවක්; හෝ ඕනෑම මූල්ය උපකරණයක ඉදිරිපත් කිරීමක් හෝ ඒ සඳහා පෙළඹවීමක්; හෝ විශේෂ ඉල්ලීමකින් තොරව ඔබ වෙත ලබා දෙන ලද මූල්ය ප්රවර්ධනයන් ලෙස නොසැලකිය යුතුය.
ඕනෑම තෙවන පාර්ශවීය අන්තර්ගතයක් මෙන්ම XM විසින් සකසන ලද අන්තර්ගතය එනම් අදහස්, පුවත්, පර්යේෂණ, විශ්ලේෂණ, මිල ගණන් සහ වෙනත් තොරතුරු හෝ මෙම වෙබ් අඩවියේ අන්තර්ගත තෙවන පාර්ශවීය වෙබ් අඩවි සඳහා සබැඳි සාමාන්ය වෙළඳපොළ විවරණයක් ලෙස "පවතින පරිදි" සපයා ඇති අතර එහි ආයෝජන උපදෙස් ඇතුළත් නොවේ. ඕනෑම අන්තර්ගතයක් ආයෝජන පර්යේෂණයක් ලෙස අර්ථ දක්වා ඇති ප්රමාණයට, ආයෝජන පර්යේෂණයේ ස්වාධීනත්වය ප්රවර්ධනය කිරීමට නිර්මාණය කර ඇති නෛතික අවශ්යතාවලට අනුකූලව අන්තර්ගතය සකසා නොමැති බවත් එලෙස අරමුණු කර නොමැති බවත් ඔබ සලකා පිළිගත යුතු අතර එබැවින් එය අදාළ නීති සහ රෙගුලාසි යටතේ අලෙවිකරණ සන්නිවේදනයක් ලෙස සලකනු ලැබේ. ඉහත සඳහන් තොරතුරු සලකා මෙතනින් ප්රවේශ විය හැකි, ස්වාධීන නොවන ආයෝජන පර්යේෂණ සහ අවදානම් අනතුරු ඇඟවීම පිළිබඳ අපගේ දැනුම්දීම ඔබ කියවා තේරුම් ගෙන ඇති බව සහතික කර ගන්න.
