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16 June 2021

Muffle the lych bell!


So, my expectation that the LME Ring was doomed turns out - for the moment at any rate - to be wrong. After the sounding of the passing bell and the death knell, we’ll have to put a muffler on the lych bell, as the body is in fact not approaching the churchyard and the grave. 

After considering all the replies and comments made to the consultation document published some months ago, the LME has made the decision to re-open Ring trading; the strongest message coming across from the interested parties was in support of the historic open-outcry price-setting mechanism. So in September - assuming we’re not faced with yet more delays in a re-opening of normal society - activity, noise and bustle will return to Finsbury Square. 

Does that mark a victory for the metal industries over the financial players? After all, it was the traditional users from the industry who were most vocal in supporting a return to the old ways, and the new upstarts in the investment area who were less enthused. One could suggest that the issue was much more significant for those to whom the LME is a central part of business, and less so for those to whom it is just a (mostly) relatively small part of their overall activity. So yes, it would seem that the desires of the specialists have won out over those of the generalists.

Or at least, up to a point. Because we are not going back to how it was before. What is planned is a hybrid system, which will give the trade its open-outcry determined Official Prices, and the investment community an electronically-created closing price (I thought hard about capitalising one of these and not the other, because I have a feeling that such an implied difference of significance may be at the back of some minds). 

I wonder about this; I am unashamedly one of those of a generation for whom the Ring has been a central part of business, and as I have said here before, I would be sorry to see it disappear. However, the world changes. The LME is not what it was; the member-owned price discovery forum is now a Chinese-owned business in its own right. These days it employs well over 300 people (those who can remember can contrast that with 20 years ago), it has its own marketing and sales departments, it is profit-making rather than redistributing surplus income to Members. All this is fine - after all, generating profits is why we are all in the metals business. However, the  bald fact is that Ring-dealing membership has declined from over thirty in the 1980s to just nine today.

Will muddying the waters with a compromise work? Operating a Ring-dealing business is quite expensive, and while some have over the years been extremely successful in making a great deal of money out of it, as that membership statistic suggests, others have not had such a good time. It’s conceivable that I will be proven wrong on this, but I have strong suspicion that the costs for those involved in the dual system are unlikely to reduce; and from a starting point of nine Ring-dealers, any further desertions will make life extremely difficult. 

Compromise solutions are I suppose what trading is all about - nobody gets all they want, but everybody gets something they can accept. Stretch too far, though, and you may find that nobody has enough of what they want for the compromise to hold water.

So we’ll put the muffler on the lych bell for the moment, but I don’t suggest we turn the belfry lights off just yet. There is more to come in this story.   


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