bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Reuters

The London Metal Exchange's open-outcry ring is a historical curiosity, a throwback to Victorian London, when men in top hats met to do business in the coffee shops and alleys surrounding the Bank of England.
It is a baffling theatre of shouting and hand gestures, confined within a small circle of red leather seats and bound by a complex code of etiquette.
Yet Europe's last remaining open-outcry trading venue is still the primary price discovery mechanism for the world's nonferrous metals trade.
How it has survived for so long against the tide of history is a mystery, even to most of the LME trading community.
Few thought it would outlast the 20th century, expecting it to be swept away, like so many other trading floors, by the surge in electronic trading.
And even fewer expected it to survive a six-month review initiated by the LME's new owner, Hong Kong Exchanges and Clearing. Particularly at a time when regulators the world over are scrutinising commodity-pricing benchmarks.
Those other London pricing relics, the bullion fixes, are currently melting under the glare of regulatory scrutiny.
But the LME has decided to stick with its archaic trading forum "for as long as the market needs it", according to Garry Jones, its chief executive. Indeed, ring-trading is one of three alternatives in the LME's pitch for taking over the silver fix from August.
So, what is so special about the ring that this historical curiosity will still determine the prices of metals like copper and aluminium well into the 21st century?
The origins of the LME ring date back to the early 19th century, when trading in metals spilled out of the overcrowded Royal Exchange into the nearby Jerusalem coffee house.
A merchant with business to transact would draw a circle in the sawdust on the floor and call out "change", at which point others would assemble to trade. Any unfinished business would be conducted outside on the kerb of the pavement.
The "kerb" still denotes the two periods of trading that follow the LME's morning and afternoon ring sessions.
The ring remained the sole focus of LME business until the 1970s, when one pioneering house broke with tradition and started making a market in the morning. The collective ambivalence about such a revolutionary move has been frozen in time in the form of the moniker for this particular session.
It is still known as "the pre-market". Not to be confused with the "real" market that took place on the ring sessions.
The rings generated the "official" price, used by producers, merchants and manufacturers in their physical contracts, giving them incentives to channel hedging business into the price-discovery process, a golden circle of liquidity.
And they still do. The LME "officials" remain the primary benchmark for industrial metal prices.
They are now complemented by the "unofficials", which are set in the afternoon trading session, originally a nod at the time-zone sensitivities of South American producers.
The afternoon "kerb", meanwhile, remains the key determinant of the LME closing price, against which positions are valued for margining purposes at the end of the day.
The LME ring today would still be largely recognisable to a metals broker from the middle of the last century.
However, he might remark the absence of the large copper ashtray at the centre of the ring, a 1990s casualty of health dictates.
Reuters


Victorian London lives on in shouts at metal exchange

Trading in the ring at the London Metal Exchange. Photo: Reuters

Business

Commodities

The London Metal Exchange's open-outcry ring is a historical curiosity, a throwback to Victorian London, when men in top hats met to do business in the coffee shops and alleys surrounding the Bank of England.
