September 13, 2016 / 5:10 PM / a year ago

Disruption to open outcry trading hits LME volumes

LONDON (Reuters) - The temporary relocation of open outcry trading at the London Metal Exchange (LME) to a disaster recovery site due to problems at its new offices hit volumes hard during the already quiet summer months, broking sources said.

For all contracts traded on the LME, volumes fell more than nine percent year-on-year in August to 12.18 million lots, after a drop of nearly 18 percent in July. Volumes for aluminium and copper fell nearly 22 percent and seven percent respectively in August from the same period a year ago.

Open outcry operated from Chelmsford, east of London, between July 18 and Sept. 2.

“People have had to travel many more miles, floor traders haven’t been able to come into the office, our teams have been fragmented,” one senior metals broker said.

“Our volumes are down because of having to operate from Chelmsford, it made the summer lull much worse.”

The exchange moved open outcry or ring trading after structural problems forced the shutdown of its offices at Finsbury Square in London.

“There is no evidence that the temporary closure of our offices impacted our volumes and all trading, clearing and other operations continued to operate as usual during this period,” the LME said.

“However, the last few months have seen particularly low volatility and underlying market activity, which are likely to be the main causes for lower trading volumes on the LME.”

Sources declined to say by how much their individual volumes had fallen, though they did say the infrastructure at the disaster recovery (DR) site had been a problem.

“There weren’t enough phones and we didn’t have splitter phones,” a head of a commodities brokerage said.

Splitter phones have buttons that allow a trader to switch between two clients wanting to trade.

“Effectively a trader (on a splitter phone) can be talking to four people, two on each ear,” a metals trading source said.

Also, a problem was that telephone numbers at the Chelmsford site had to be hand-dialled as single press buttons had not been set up.

“It held up the traffic and people were uncertain about things like clearing, so they decided to wait,” the metals trading source said.

The LME cut fees for open outcry trade during August as a goodwill gesture after having to vacate its Finsbury Square offices.

Volumes on the exchange have been falling since trading fees rose an average 31 percent in January 2015. The LME from Sept 1 cut fees for short-dated trades or carries - trades between tomorrow and 15 calendar days ahead.

Tumbling LME volumes helped depress first half-profits at parent Hong Kong Exchanges & Clearing Ltd’s (HKEX).

Reporting by Pratima Desai; Editing by Mark Potter

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