LME ring unbroken after 130 years

LONDON (Reuters) - It was outdated, inefficient and unnecessary. In a modern, wired-up economy, what place was there for boisterous men in suits doing deals by standing in a circle yelling at one another?

As recently as last year, market commentators were predicting the demise of the "ring" at the London Metal Exchange, the last open outcry trading floor in the Square Mile.

But one year on the LME, one of the world's leading commodity exchanges, will celebrate its annual dinner in its 130th year with the first new ring dealing member in more than a decade -- ED&F Man Commodity Advisers -- now among its ranks.

"It's a big deal for the ring," exchange Chief Executive Martin Abbott said. "It vindicates the support we have voiced for the ring as a viable part of our overall business."

ED&F Man Commodity Advisers, the brokerage arm of ED&F Man, joined the LME in September and its ring dealing operation opened for business in early October.

Open outcry trading, which the LME offers as well as telephone and electronic trading, is seen by many as the spiritual heart of the exchange, and a vibrant ring appeals to traditionalists in the industry.

But the banks and trading firms that make up the LME's membership don't decide to open or shut ring dealerships on sentimental grounds.

"It's about taking solid business decisions. It's good to see there are businesses out there that see a business model based on the ring," Abbott said.

ED&F MCA sees the ring -- also known as the floor -- as key to its metals business as a way of judging market direction, and the best way to conduct some of the more complex business.

"Being on the floor gives us a better feel for the market, you can gain information by being there," ED&F MCA Managing Director Igor Placet said.

FEEL THE PULSE

On the floor, experienced dealers read the signals passed back and forth in noisy five-minute trading sessions.

"The electronic trading system is extremely efficient but it's pretty difficult to obtain a pulse of the market," said Michael Overlander, Chief Executive of Sucden, a prominent ring trader.

"On the floor of the exchange, dealers weigh up the opposition, get a flavor of what the market wants, where the market is going, and they try and structure their books accordingly depending on the vibes they pick up on from around the ring," he said.

Clients of the traders -- be they hedge funds, institutional investors or metals firms -- can use information gleaned in the often frenetic sessions.

"That's the electricity, the vibrancy of the exchange which many of our customers are looking to get feedback from," Overlander said.

Firms also believe the ring is more suited to complicated transactions than is the LME's electronic platform, Select.

"LME contracts have a complex prompt date structure," exchange chief Abbott said. "With such complexity, there will be business that is difficult to do on a point-and-click basis."

After welcoming ED&F MCA, the exchange has other applications for membership in the works, it says. These may be for ring dealerships, or for the other categories of membership that have proved popular with banks and trading firms as the metals business has boomed in recent years.

Either way, more members should mean more business, says Overlander.

"More players will bring hopefully new business as opposed to diluting the existing stuff."