March 17, 2020 / 11:46 AM / 24 days ago

UPDATE 2-London Metal Exchange plans to suspend ring trading next week

(Adds details, comments from LME member)

By Eric Onstad

LONDON, March 17 (Reuters) - The London Metal Exchange (LME) plans to suspend open-outcry trading next week and shift all business to its electronic system for the first time after Britain imposed severe restrictions on social life to fight coronavirus.

The 143-year-old LME said on Tuesday it expected to temporarily close Europe’s last open-outcry trading venue next Monday to safeguard traders.

The only other time the LME’s circle of padded, red-leather seats has shut was during World War II when the whole exchange was closed, a spokeswoman said.

The move creates challenges for a complex market structure that allows for a huge number of short-term contracts to be traded, almost exclusively in the ring, LME members said.

“It’s quite a dramatic change, but coronavirus is dramatic,” said an executive at a member firm allowed to trade in the ring.

The exchange, owned by Hong Kong Exchanges and Clearing Ltd. , said on Monday an employee of one its ring-dealing members had contracted the coronavirus.

“The LME believes it important to adapt its trading approach to heed government advice,” said in a statement on Tuesday.

“If current trends continue, the LME anticipates that it will temporarily move to fully electronic pricing on Monday 23 March.”

Prime Minister Boris Johnson on Monday shut down social life in Britain, ramping up the battle against a coronavirus outbreak just as it accelerates towards its peak.

The exchange has limited experience in shifting ring trading to its electronic Select system, after a trial last year in which nickel closing prices were done digitally.

The LME and members are consulting on how best to move to electronic trading, the executive said.

“It’s clearly a challenge about how to settle the forward part of the market,” he added.

Unlike most futures exchanges which have one contract per month, the LME allows daily trading out to three months and weekly prompts between three months and six months.

This was designed to mirror physical trading, allowing mining firms and industrial buyers to hedge their needs down to the day, but this will be very complex to do electronically.

Ahead of the transfer to electronic trading, the exchange will shift ring trading to its backup location in Chelmsford, northeast of London, on Wednesday to minimise travel for traders, the LME said. (Reporting by Eric Onstad, editing by Louise Heavens, Kirsten Donovan and Jan Harvey)

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