LME does not see early return to trading ring; confident of more transparency: CEO

London — The London Metal Exchange does not expect to be able to reopen its trading ring "any time soon" due to the COVID-19 pandemic, CEO Matthew Chamberlain told participants in the LME Week Seminar Oct. 19.

"We have to be prepared to be out for at least the duration of the winter, perhaps for another six months," Chamberlain told the virtual event, noting that the conditions set in July for a return to the Ring -- a broad end of social distancing in the UK, and a widely-effective vaccine or other innovation that could allow a return to open-outcry trading -- look unlikely to be met anytime soon.

"It seems unlikely that we might be able to return to the Ring anytime soon," he said.

The exchange is setting up a working group to discuss the situation and consider three questions, including whether it would help the market to set a date, perhaps in the spring -- before which there is no intention of going back to the Ring -- so that there is clarity on this during the winter; to look at pricing methodology to make it more efficient in an electronic environment, including trading timings; and to consider other recommendations on the balance between electronic, ring, and telephone trading, Chamberlain said.

LME chairman Gay Huey Evans noted that near the start of the pandemic, the LME and its members had responded admirably to the situation, switching from open-outcry ring-trading to electronic pricing in the space of less than a week, in a "remarkably smooth" transition.

The LME is meanwhile keeping up the pace on its sustainability initiatives, Huey said. The exchange is continuing to make good progress on its new electronic platform, designed to enable the LME to become more responsive to market needs and to a wide variety of market participants, due to go live in 2022, Huey added.

Metal flows, Malaysia queues

Chamberlain noted metal flows through warehouses have continued despite "real concerns" on flows in the spring due to the pandemic.

"The LME does have contingency plans in the worst case that a port or a warehouse were unavailable, due to local health actions," he said.

The LME is increasingly confident that warehouse policy changes and reforms put into place in the decade since the global economic crisis have left the exchange in a better position, said Chamberlain.

Once again, as seen 10 years ago, there has been a significant inflow of metals, particularly this time into Malaysia, some of which is being loaded out, bought or sold, or moved to China for physical consumption, or stored elsewhere, he noted.

However, the operational queues at Port Klang currently amount to around 61 days, and are not funded by incentives, and this is fundamentally different to "the many hundreds of days of structural queues" seen some 10 years ago, Chamberlain said, adding that as far as the LME is aware, the current situation is not distorting the physical market in any way.

"We will continue to monitor this closely and continue to pursue further transparency through, for example, our off-warrant stock reporting, and we want to hear from all participants," he said.

"The LME reflects the dynamics of the real world economy ... we are very confident it reflects the real world metal conditions, which ultimately is what it's there to do," he said.

Drive for transparency, sustainability

The exchange now has an "extremely exciting pipeline of innovation," with measures designed to boost transparency and sustainability, Chamberlain said.

On Nov. 30, the LME will deploy a pre-trade transparency solution designed to express regulatory intention and last week released a "very significant" document on the exchange's electronic warrant depository, to move away from a physical warrant depository where bearer documents need to be placed into a vault, and which will "dematerialize" metal in 14 different jurisdictions worldwide, the CEO said. This is due to go live in February 2021.

There has also been consultation on a new system of options, designed to create a "truly transparent, electronic and more visible" options market, with 36 responses in favor following a discussion period on the subject, Chamberlain said.

Another initiative is the LMEPassport, a solution for digitizing certificates of analysis on physical delivery of metal, which following consultation has come back with 19 positive responses.

The exchange's Sustainability Paper, meanwhile, came back with 29 positive responses on the attaching of environmental data to metals traded on the exchange and "overwhelmingly in support of the LME playing a role ... to complement the great work ... by producers, converters, and consumers to allow sustainable production to be embedded in the metals value chain," Chamberlain said, adding, "The LME needs to be a leader in this space."