The London Metal Exchange is proposing to permanently close 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 has 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.
Now, the exchange wants to make the closure permanent, it told members on Tuesday, as it set out a raft of measures to boost electronic trading of its markets.
The closure of the Ring would end 144 years of trading history, dealing a blow to the companies that specialize in trading on it, as well as the brokers, clerks and others whose jobs depend on the ecosystem that has grown up around the LME’s floor. Much of the trading on the LME already takes place electronically, but in preserving the Ring, it’s partly resisted the headlong push into digitization and automation seen in the wider financial markets.
“You can’t work at the LME without loving the Ring; it’s been such a huge part of our history and our culture,” LME Chief Executive Officer Matthew Chamberlain said in an interview. “It is tough in that sense, but we can’t let that get in the way of what we believe is best for the next 140 years.”
The relatively smooth closure of the Ring since the pandemic struck revived a years-long debate about whether the trading floor 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.
Read more: Trading Ring That Survived Two World Wars May Succumb to a Virus
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.
Traders have been dealing metals in London ever since a circle was first drawn in the sawdust in a coffeehouse off Cornhill in the early 19th Century. The LME was formally established in 1877, and the Ring — complete with rules such as the need to remain seated on its red leather sofas at all times — survived as the pre-eminent venue for metal trading though world wars, scandals and ruinous defaults.
“I think the strength of the City is its ability to be international, its ability to evolve, its ability to be at the center of international trade,” Chamberlain said. “We will only be able to maintain that position if we evolve our institutions.”
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.
The Ring’s detractors have long argued it’s an anachronism that should be consigned to the history books alongside other trading floors like the International Petroleum Exchange in London and the New York Mercantile Exchange. But the Ring has deep roots in the physical markets, and its supporters argue that, while membership has diminished, it serves the global metals industry as well today as it did in Victorian times.
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.
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.
“We want to see a continuation of the Ring, and we’ll be making our thoughts on the debate known,” said Kevin Tuohy, co-head of base metals at StoneX Group Inc., one of the largest floor dealers. “Our floor traders have continued to operate successfully through this period — our traders are still trading and our salespeople are still selling — but returning to the Ring would be our preferred option.”
The stakes are high for the LME too, as rival exchanges will likely see an opening to lure users of the Ring onto their own electronic platforms.
Trading volumes on the LME fell to the lowest level in a decade last year as the pandemic ravaged major industrial economies. Some brokers say the closure of the floor also contributed meaningfully to the drop.
The proposal is being put up for discussion until March 19, and the LME plans to make a final decision before the end of the second quarter. It’s also mulling significant changes to the cost of trading in its telephone-based market and additional market-conduct disclosures for its physical users, both of which are likely to be contentious issues in their own right.
“We deeply respect the Ring, we love its traditions and it’s been fantastic for the LME,” Chamberlain said. “But we’ve always said that it’s appropriate to evolve the market as the overall industry moves on and as the needs of our participants move on.”
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