Tuesday 17 March 2020 2:48 pm

London Metal Exchange plans to suspend ring trading amid coronavirus outbreak

The London Metal Exchange (LME) is planning to suspend open outcry trading and shift its business entirely on to electronic systems for the first time in its 143-year history to limit the spread of coronavirus. 

The LME said today that it expects to temporarily shutter Europe’s largest open-outcry trading venue next Monday to protect traders from Covid-19 following fresh government instructions on social distancing. 

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The only other time the exchange’s trading floor has been closed was during World War II, when the whole venue was shut down, according to a spokesperson. 

The LME, which is owned by Hong Kong Exchanges and Clearing, said yesterday that an employee of a firm that trades on its floor had contracted Covid-19.

“The LME believes it important to adapt its trading approach to heed government advice,” the exchange said in a statement.

“If current trends continue, the LME anticipates that it will temporarily move to fully electronic pricing on Monday 23 March.”

The move online creates challenges for the LME’s complex market structure, which allows for a huge number of short-term contracts to be traded, almost exclusively within the exchange’s ring of red leather seats.

“It’s quite a dramatic change, but coronavirus is dramatic,” an executive at a firm allowed to trade in the ring told Reuters. 

Prime Minister Boris Johnson yesterday ramped up the government’s approach to the coronavirus pandemic, telling the public to avoid pubs and restaurants and ordering those who can to work from home. 

The LME will shift ring trading from its Finsbury Square headquarters to a backup facility in Chelmsford from tomorrow, ahead of plans to switch entirely online next Monday, although the exchange said the changeover could happen earlier or later than that.  

The exchange has limited experience of shifting ring trading to an electronic system, following a trial last year in which nickel closing prices were done digitally. 

Unlike most futures exchanges which have one contract per month, the LME allows daily trading out to three months and weekly prompts between three months and six months.

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This system was designed to mirror physical trading, allowing mining firms and industrial buyers to hedge their needs down to the day, but could be complex to replicate entirely electronically. 

The LME is consulting with members as to how best to shift to electronic trading, the executive told Reuters. 

“It’s clearly a challenge about how to settle the forward part of the market,” they said.