Ring dealers sit at fixed points around the 20 ft (6 m) diameter ring, with clerks standing outside.
Behind a modest doorway on Leadenhall Street lies the one of the liveliest trading places in the City: the London Metal Exchange, last outpost of ‘open outcry’ trading anywhere in Europe.
Ring dealers sit at fixed points around the 20 ft (6 m) diameter ring, with clerks standing outside.
The trading pit in the dealing room at the LME is a small circle of red leather-upholstered benches, known as the ring, which is surrounded by banks of telephones. This part of the exchange is populated by representatives of the eleven ring-dealing firms permitted to deal across the floor. Concentrated into noisy and intense sessions from just before midday until five in the afternoon, the besuited traders shout out to each other and use arcane hand signals. An upward hand movement signifies ‘bid’, and downwards means ‘offer’, with the number fingers indicating price. Traders are not permitted to leave the benches, but a foot in contact with the leg of the furniture qualifies as sufficient to comply with the rules. At trading times each firm’s ring seat is surrounded by clerks standing just outside, passing instructions and providing commentaries on fixed-telephone links to clients. There are also other categories, such as associate brokers and associate trade members, trading outside the ring, numbering around a hundred. Forms of aluminium, copper, lead, nickel, tin, zinc and molybdenum are traded – all non-ferrous metals, with the exception of steel, which was added to the list of traded metals in 2008. Each metal is traded in rotation during two ring sessions for five minutes each. At the end of each ring session comes kerb trading, when all the metals are traded simultaneously. The process seems frantic, and outsider observers generally find the open outcry incomprehensible, but it seems efficient and is scheduled to continue until at least 2015. The LME estimates that more than 80 per cent of the world’s non-ferrous futures are traded through its systems.
The bell is now symbolic. Ring trading comes to an end at 17.00, but telephone trading is 24-hour.
Along the way, the system determines prices for materials that end up in cars, beverage cans or electronic goods, but the materials traded are seldom physically moved as a result of the deal. Only a fraction of the contracts traded go to maturity. It is a financial rather than a physical market, mostly a matter of investment and forward trading. Metal price volatility means that producers are at the risk of prices falling, and consumers suffer when prices rise; buying LME futures hedges against these price movements.
The London Metal Market and Exchange Company was founded in 1877, based above a hat shop in Lombard Street, although it can trace its origins back three hundred years before that. The first commodities market in London was the City’s Royal Exchange, dating from 1571. Copper was the first metal traded. Based on the three-month shipping delivery time of copper from Valparaíso, Chile, to Britain, and later tin from Malaya and Singapore by the recently opened Suez Canal, traders would buy or sell for a future delivery, based on a vessel’s arrival date. The legacy survives today in the form of many deals that are struck for delivery in three months’ time. The London Metal Exchange and its dealing room has roved about the City, from Whittington Avenue to Fenchurch Street, and then to Leadenhall Street in 1994. Electronic trading was introduced in 2001. Hong Kong Exchanges and Clearing Ltd bought the LME in 2012.
London Metal Exchange prices are published daily.