RVM is used in most other commodities markets and favoured by many financial investors who want to take profits immediately. The change to cash settlement requirements – in technical terms, a move from contingent variation margin (CVM) to realised variation margin (RVM) – is also a major area of dispute. “The LME says the clients are not complaining – that’s because we are still giving them the price, it’s us that’s suffering.” “On the floor it’s easy for the Ring dealers to use their own skill and liquidity to reshape a price back into line – when it happens on screen it’s very difficult for them to do that,” says Marc Bailey, chief executive of Sucden Financial, a Category 1 member. Others say there is a more fundamental problem. The LME says more objections are to be expected due to the increase in participants in electronic trading. There were 66 objections to closing prices between March 2020 and January 2021, compared to 23 during the 11 months before the closure, figures released last week show. Verband Deutscher Metallhandler (VDM), an influential German metals trade group, has written to Mr Chamberlain to claim that the proposals “do not serve the LME’s strategic principles, especially that of serving the physical market.” Closing the Ring will harm efficiency and liquidity, it argues. LME management argue that the overhaul could boost transparency, as well as making the market fairer and more efficient. Bosses also want profits and losses to be settled daily rather than only when contracts expire. As well as closing the Ring, proposed changes include new fee structures. Its latest efforts at modernisation are proving more controversial. Owned since 2012 by Hong Kong Exchanges and Clearing, the LME has been tiptoeing away from its macho, old-school image – banning daytime drinking, for example. Global benchmark prices are set during hectic five-minute sessions in the Ring, while trading also goes on throughout the day via computers or the telephone. “They should make an effort to retain these advantages and enhance them, as opposed to disadvantaging end users and LME volumes.”Ĭontracts covering about 3.5bn tons of metals such as aluminium, copper and nickel are traded each year through the exchange, which has its roots in 16th-century London and is now based in Finsbury Square. “The LME has a great product and several competitive advantages including access to credit, the date structure, choice of execution venue, and low costs,” says Fred Demler, global head of metals at ED&F Man, one of the Category 1 members which have exclusive rights to trade using open outcry in the Ring. But a pushback is emerging among those who claim the LME risks shifting away from its core role in the physical metals market, exposing the tensions facing Matthew Chamberlain, the chief executive, as he seeks to secure its future. It is among a host of other potential changes bosses are proposing to modernise and bring new business to the 144-year-old global trading centre for industrial metals. The LME has proposed making the shift to electronic trading permanent, arguing that the potential merits are clear from its enforced experiment. The end of lockdown now looms, but the Ring – where raucous shouting and hand signals are used to set prices across the globe, in one of the last markets anywhere to resist digitisation – may never return. But since March last year, the historic open outcry Ring at the London Metal Exchange has been silent.ĭealers were sent away from the site’s red leather benches for the first time since the Second World War as the pandemic took hold and electronic trading took over. For more than century, it was filled with the sound of traders bellowing prices at each other.
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