LME Plans to Close Open-Outcry Ring for First Time Since WW2
LME Plans to Close Open-Outcry Ring for First Time Since WW2
(Bloomberg) -- The London Metal Exchange plans to temporarily suspend trading on its iconic open-outcry dealing floor for the first time since World War II as the U.K. tries to limit the spread of the coronavirus.
The LME’s trading ring -- the last of its kind in Europe -- plays a key role in setting global benchmark prices for base metals including copper and aluminum. The switch to electronic price determination is currently planned for March 23. While the LME has tested the alternative system, it said members shouldn’t underestimate the risk of short-term market impacts from the change.
The metals market was bracing for an announcement after the LME on Monday said a trader on the floor had contracted the virus. While floor-dealing firms told the bourse they wanted to continue trading, the LME is making the switch after U.K Prime Minister Boris Johnson pushed for “draconian” measures to slow the spread of the virus. It will move its traders to a back-up dealing site outside London from Wednesday to limit journeys into the capital.
The origins of the ring date back to the early 19th century, when traders would convene at a London coffee house to manage price risks on cargoes of metal being shipped to the capital from as far away as Chile and Malaya. While it now has an active electronic and phone-based market, the open-outcry process of settling prices has endured.
The last time trading was halted on the ring was during World War II, when the entire exchange shut down for several years, according to a spokeswoman for the bourse.
Finding an alternative pricing process isn’t the only unique problem facing the LME as the U.K. seeks to limit interaction. Traders are also worried they’ll run into problems delivering metal into the bourse’s global warehousing network if a London office which handles their orders is forced to close.
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