The Fight to Save the LME Ring Begins as Traders Warn on Pricing

The London Metal Exchange is facing broadening resistance to a plan to close its iconic open-outcry trading floor, with German traders and manufacturers joining some members to warn that closing “the Ring” would hurt pricing and volumes.

The LME suspended trading on the floor in March, and last month set out a plan to shutter it permanently. It’s inviting feedback on the proposal -- which would involve switching to a fully electronic pricing model -- ahead of a likely final decision in April.

The plan is a blow to the specialist dealers who trade in the Ring, so their efforts to save the trading floor are not surprising: Some have warned that the move could undermine the metals prices that are embedded into supply contracts the world over. But it’s not just the Ring dealers who are pushing back against the closure -- there are now signs of opposition from the physical metals industry too.

“Without the ring, efficiency and liquidity will be affected adversely,” Verband Deutscher Metallhandler, an influential group representing German metals traders, said in a letter to the LME on Tuesday, a copy of which was seen by Bloomberg. “Closing the venue during a difficult time for all members and customers should not happen without having an open and honest conversation with them about its future.”

While the fate of the Ring will ultimately be decided by the LME and its owner, Hong Kong Exchanges and Clearing Ltd., the bourse has committed to upholding the interests of its physical user base.

Nearly a year into the temporary suspension of the Ring, the LME has said it’s confident that it can move to electronic pricing without adverse effects. But StoneX Group, which has one of the largest Ring-dealing teams, says that the process of establishing benchmark prices has been far less efficient while the Ring’s been closed.

The LME has received substantially more routine objections from brokers about pricing in recent months, according to Kevin Tuohy, StoneX’s co-head of base metals. That suggests that the switch has been less smooth than it appears, and liquidity could suffer further if the bourse makes the switch permanent, he said in an interview.

The Fight to Save the LME Ring Begins as Traders Warn on Pricing

“The Ring gives our customers far better choice and access to deeper liquidity and complements electronic trading,” Tuohy said by phone. “We will continue to maintain a big floor team on the expectation of a return to the floor.”

The LME welcomes the discussion of its proposals “and would encourage market participants to send us their feedback over the discussion period,” spokeswoman Miriam Heywood said by email.

The closure of the Ring isn’t the only contentious issue up for discussion. The bourse is also planning changes to the way it calculates clearinghouse margins, in a move that could have a knock-on impact on brokers’ ability to extend credit to clients. In its letter, VDM expressed strong opposition to the proposal, warning of adverse impacts on small and mid-sized users of the bourse.

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