LME to move ring trade to back-up location, eyes electronic trading

New York — IThe London Metal Exchange said Tuesday it will switch all ring trading to its backup location in Chelmsford, east of London, from Wednesday in a bid to counter the increased transmission of the coronavirus, with the possibility of it all moving to an electronic platform should the situation worsen.

Following the UK government's advice to minimise unnecessary travel to counter the coronavirus, the LME said that for the safety of its workers it would switch open-outcry ring trade to its Chelmsford location, "in order to minimize the transit of Ring-based personnel through London."

It added that, "the LME believes it important to adapt its trading approach to heed Government advice, and play its role in minimising potential for disease transmission."

The coronavirus pandemic continues to rattle global markets and economies, to the core. Stock markets continue to free-fall into bear territory, and many analysts are now predicting a world-wide recession into the second quarter.

"If current trends continue, the LME anticipates that it will temporarily move to fully electronic pricing on Monday 23 March 2020 (with prices being calculated on the basis of electronic market activity on LMEselect). Ring trading would then be suspended until conditions normalise in respect of COVID-19, at which point Ring trading will resume. During this period, trading will be conducted via LMEselect and the inter-office market," the exchange said.

It added that the move to electronic could come sooner than that.

"Given the dynamic nature of the current situation, the LME reserves the right to implement fully electronic pricing at an earlier or later date than set out above," it added.

The exchange cautioned that the move to fully electronic could have a big impact on the price discovery mechanism.

"The short-term market impact of a switch to electronic pricing should not be underestimated," it added.

"The market should note that electronic settlement -- given the complexities of the LME date structure -- may generate a differently priced forward curve than would have been achieved on the Ring, and lead to a different set of market practices. These may in turn have a significant impact on how LME market participants conduct their business (and, in particular, the ability of Members to guarantee closing price orders to clients)," it said.

On Friday CME, the world's largest futures exchange, halted floor trading at its Chicago hub as a precautionary measure in the face of the pandemic.

A trader said at the time that this could be the "nail in the coffin" for open-outcry trading. Most products are now traded on electronic screens and there is often debate around the need for open-outcry. "COVID-19 is having so many unexpected consequences, it's getting really bad out there," he said.