In an effort to modernize the commodity market’s structure, the London Metal Exchange (LME) is proposing to shutter its trading floor and move to an all-electronic model.
The LME issued a discussion paper on the future of its markets, which includes a proposal to permanently close its Ring trading floor, which has been temporarily shut over the past 10 months due to the Covid-19 pandemic.
“The Ring is a greatly treasured aspect of the LME’s rich 144-year history, and its closure is not a decision we or our market will take lightly. However, the LME has stood the test of time precisely because of its ability to adapt to the evolution of market dynamics and trading behaviour,” said Matthew Chamberlain, chief executive of the LME, in a release.
“We have been clear that we will not use the pandemic as a pretext to close the Ring, and we remain committed to this; however, it is fair to observe that this period of electronic pricing has served the market well, with consistently high volumes of activity in the pricing window, easily observable by all stakeholders, and more participants with direct access,” Chamberlain added.
The exchange said that its proposal to permanently adopt an electronic pricing structure will improve transparency, market efficiency and, ultimately, liquidity.
The proposals also include measures to incentivize electronic trading and considers steps to enhance market conduct, such as tougher disclosure requirements.
The deadline for feedback is March 19. The LME aims to set out its plans before the end of the second quarter.