London Metal Exchange Pedals Back on Closing Trading Ring

The London Metal Exchange will reopen its open-outcry trading ring in September, halting plans to close a pit that dates back to the industrial revolution following resistance from an influential group of traders.

The exchange temporarily closed the ring, a circle of red leather couches around which traders barter metals such as copper and aluminum, in early 2020 when the coronavirus pandemic was ripping through the U.K. In January, the LME said that it planned to permanently shut the trading pit, which caters for producers and consumers of physical metal, in a bid to attract more financial players to its electronic marketplace.

The exchange backtracked Tuesday, saying the ring would open again on Sept. 6. In an effort to strike a compromise between those who protested the closure and those who had cheered the plan, the LME said official prices widely used in physical metal contracts would be determined in the ring. Closing prices used to assess the value of financial portfolios will be calculated electronically.

“We can’t be the sole arbiter of the best interests of the market; we must listen to what the market thinks,” said

Matthew Chamberlain,

the LME’s chief executive.

The reversal marks a victory for trading firms that are members of the ring. These dealers had pushed back against the closure, saying that scrapping the pit would make it more difficult to make complex trades that protect clients such as mining companies against price swings.

The Wall Street Journal reported in March that the LME was likely to pare back the planned overhaul—the biggest in over 20 years—following the outcry.

The final decision means one of the few remaining vestiges of open-outcry trading will be preserved. Such venues have been gradually shut down across the world over the past two decades as electronic trading has become the norm. Last month,

CME Group

said it wouldn’t reopen most of its trading pits in Chicago after temporarily closing them in March 2020.

Mr. Chamberlain said he hoped the London ring would remain in place for at least 10 or 20 years. “I don’t see any fundamental reason that we would have to revisit this,” said.

The decision to keep the ring, but take away its ability to set closing prices, came as a surprise, said

Marc Bailey,

chief executive of Sucden Financial, one of the exchange’s top members. Traders would need to consider whether the volume of transactions in the ring once it reopens would be enough to make operating there economically viable, said Mr. Bailey.

The debate over the changes took place at a time when metal prices are shooting higher in response to a revival in demand as the U.S. and other major economies loosen coronavirus restrictions. Prices for copper, a bellwether for the global economy because of its use in construction and autos, among other applications, have jumped 74% over the past year to $9,938 a metric ton on the LME.

In another win for the ring members, the LME said it would stick for now with its existing method for calculating margin payments. A suggestion to bring the way the exchange, owned by

Hong Kong Exchanges and Clearing Ltd.

, assesses margin requirements into line with guidelines used on other exchanges was welcomed by fund managers. But it faced opposition from ring dealers. They said the change would hamper their ability to lend to small and medium-size clients in the metals industry and weaken the exchange’s ties to the physical market.

The LME said it would study whether it is feasible to combine the cash flows of the existing system—contingent variation margin—with contracts based on the more widespread realized variation margin.

Write to Joe Wallace at

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