London Metal Exchange’s Open Ring Trading Set to Reopen in September

Summary

  • London Metal Exchange, the world’s oldest marketplace for Industrial metals, is set to reopen the open-outcry trading floor on 6 September 2021.
  • In March 2020, LME had decided to suspend the open outcry trading floor due to social distancing norms.                         

London Metal Exchange (LME), the world’s oldest marketplace for Industrial metals, is set to reopen the open-outcry trading floor on 6 September 2021. Earlier it had planned to leave it closed after the trading got suspended and the exchange shifted to an electronic system due to pandemic. However, there was major criticism from its user, leading the LME to reverse its decision.  

Open outcry trading floor is a traditional method to communicate trade orders between traders and brokers inside an open hall where hand signals & eye contacts are used to discover a fair price somewhat similar to an auction.

                             

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Pandemic led to the suspension in trading

 

In March 2020, LME decided to suspend open outcry trading floor due to social distancing norms & prevent the spread of coronavirus. Moreover, in January this year, LME decide to start its member consultation process for the permanent shutdown of open hall trading to adopt modern-day efficient online electronic trading.

LME was of the opinion that adopting electronic means will improve price transparency & global participants. But this decision was met with heavy criticism from the broker community, who said permanent closure would impact fair price discovery mechanism as well as trading volume.

Being Europe’s last open-outcry trading has few backers in the metal & mining industry, who still say it is an efficient way to price LME’s array of contracts to hedge against purchase & sales.

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LME’s view

LME has another viewpoint and is pushing for digital change, which includes concession for those brokers who adopt digital mechanism. Additionally, LME is taking its members opinion to alter rules which will eventually close down open-outcry trading if the number of active dealer’s decline below a certain threshold.

LME has also decided to use the electronic process to determine the end-of-the-day closing price, which will further reduce revenue for open ring dealers.

The exchange though has said to retain contingent variation model (CVM) in the medium term, but in its consultation paper, it had proposed to shift to realised variation model (RVM) for the calculation of clearing margins.

Will it be the end of the era for open-outcry trading due to the digital revolution? That only time will tell, but right now, it’s a small victory for ring dealers with the trading floor set to reopen in September.

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