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27 January 2021

The Death Knell


In the ancient funeral rites of England, three bells are sounded. First, the Passing Bell,  when age or sickness force the conclusion that death is very close. For the LME Ring, that was a while ago (and written here on 24th June - “The Passing Bell”). Next comes the Death Knell, which should be rung at the moment of death. If you stand quietly in the cold, covid-drenched winter air of the deserted City, I’m sure you will hear it sounding in an otherwise silent Finsbury Square. Although the LME’s latest discussion paper is precisely that - a discussion paper, ahead of decisions being made - it would be a surprise to rank alongside the raising of Lazarus if the final decision were not for closure. And, to be honest, when looking through that paper, the Ring is not the hill to die on; there are other mooted changes which will probably in the end provoke greater discussion.

So what are we going to lose? Well, this is one of those (relatively) rare occasions when we can genuinely, without hyperbole, use the word iconic. The LME Ring is an icon of the City, maintaining London’s predominance (pace the upstart newcomers of New York and Shanghai, but it still clings on) in the pricing of non-ferrous metals for 140-plus years. The strength of that position had its origins in the global reach of the British Empire, at its peak in the middle and late Victorian years in the last quarter of the nineteenth century. (Yes, I know we’re not supposed to say nice things about that, these days, but this column will always prefer truth to fashion…..) 

Over the next days and weeks we are doubtless going to hear and read the folklore - the false teeth flying into the ashtray, propelled by an excited bid, the poker-faced dealer fronting for the ‘mystery’ tin buyer, the subtle (or actually, not so subtle) shift from ‘gentlemen’ to ‘players’ (to borrow an analogy from another venerable British institution), the ‘lunch’-fuelled afternoon big figure mistakes, the camaraderie, the fleeting alliances made and broken across the floor in the wish to achieve the desired close, the Christmas pantomime; I shall leave all that to those with better knowledge and longer memories than me.

But it has been a success story. Open outcry as a means of establishing a reference price (and that is what is at the heart of it: other things flow from that basic imperative) has a proud record. The ability to trade it, rather than seeing an arbitrary decision made - think LIBOR - is undoubtedly the strongest advocate of such a market. 

And yet, on the other side, we must also accept that that open-outcry generated reference price was malleable. That’s part of the folklore as well; some Ring traders are more ‘valuable’ than others. Perhaps they have a louder voice, a more commanding presence, a quicker mind, a quicker mouth - whatever it is, we all accept that the reference price can be (and sometimes is) set at a level that doesn’t altogether conform to market fundamentals. That’s all part of the game. 

A good friend of mine, an influential Ring trader in his time (before he moved sideways to become an equally influential physical trader) put it like this: “The most fun I ever enjoyed as an adult was my 12 years as a Ring trader. It was like a gunfight. I would battle daily with the likes of Tony Whitting, Alan Booth, Ken Easdale - it truly was a daily fight. The fun was in driving the close up or down, I would sleep well if I won or badly if I lost.” 

So let’s not be po-faced about this, let’s stick with the medium rose tint on the glasses. Yes, open outcry is a good method of price discovery, but it’s not infallible. Will we miss the Ring? Of course. We’ll miss the drama, the theatre, the noise, the visual excitement, the sense of belonging to something particular, with a proud history. We’ll mourn the passing of another of the part of the idiosyncratic nature of the City of London - maybe in truth the last part. So listen to that Death Knell tolling, and cast a thought to the hundred and forty-four years of spectacle and success. 

The third and final bell in the funeral rite is the Lych Bell, rung as the funeral cortège reaches the cemetery - that one is not far off. 

Is it just the Ring, though? There are other points up for discussion in the LME’s paper which don’t have perhaps the emotional impact of the closure of the Ring but which nevertheless point to a very different status and significance for the LME itself in the future. We shall look at those another time; for the moment, along, I suspect with many if not most regular readers of this column, I’ll just take a moment to think of the passing of what was in many ways the heart of the global market, and central to our careers.  


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