finance

Price queries soar after halt of open outcry trading, LME says



© Reuters. FILE PHOTO: Traders work on the floor of the London Metal Exchange

By Eric Onstad

LONDON (Reuters) – Objections by members of the London Metal Exchange (LME) to the accuracy of closing prices have nearly tripled since the open outcry floor was paused due to the coronavirus pandemic, new data released by the exchange on Tuesday shows.

The 144-year-old exchange published data for the first time about the number of challenges to provisional prices at the close of trade, which are used to value end-of-day positions and margins.

The exchange said it was responding to requests for further data so members could better judge its plan to permanently halt so-called ring trading and shift fully to an electronic system.

A battle has intensified in recent months between modernists and traditionalists over the future of the LME ring, the last open-outcry trading floor left in Europe.

Some brokers have said prices have been less accurate since the ring was temporarily closed about a year ago.

Data from the exchange shows objections lodged with the LME regarding closing prices climbed to an average of 66 each month from March 2020 to January 2021, compared to an average of 23 for the 11 months before the closure.

Complaints soar on London Metal Exchange after halt of open outcry trading floor https://fingfx.thomsonreuters.com/gfx/mkt/rlgvdebrbpo/LME%20Monthly%20Objections%20Climb.png

The LME – the world’s oldest and largest market for industrial metals – said the rise in objections was due to greater participation in the process of setting prices electronically.

“With broader direct participation… and greater transparency, a greater number of objections would be expected,” it said in comments released with the data.

Other data released by the LME showed an average of 42 participants were involved in setting the closing price of the benchmark three-month contract electronically versus an average of four traders using the ring.

Last week, two brokers who oppose the LME’s shutdown proposal, said data the LME had released in January to support its proposal exaggerated the increase in the use of electronic platforms during pandemic lockdowns.

The LME temporarily suspended its ring – a circle of padded, red-leather benches where traders signal buy and sell orders with hand signals and shouting – on March 23 last year and launched a consultation process last month about a permanent closure.

The LME is owned by Hong Kong Exchanges and Clearing Ltd..

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