This article was written by Trevor Tarring. All views and opinions expressed are strictly his own.
Lord Copper’s recent – as usual – thought-provoking piece on the place of LME price discovery in the scheme of things metal – or at least non-ferrous – brought all my 60–odd years’ experience of hanging around the metal markets into play.
Looking around at other markets it sticks out like a sore thumb that the LME is all alone as the last important open outcry commodity market. When you consider how unpopular the Exchange has been with many in the underlying industries more or less throughout its life and for a multiplicity of reasons, that in itself is some achievement. When you consider also how many efforts were made throughout its history to corrupt or by-pass its process of price discovery for the benefit of those corrupting or by-passing it, you begin to develop great respect for the modus operandi developed by the founding fathers.
But in the wicked world of 2020 none of this assures the solid – or indeed any – return of open outcry when people can once again operate in close proximity to each other. Almost certainly the question of whether to commit to a return to open outcry will come to the fore. And if the decision is to revert to it, that is no guarantee that the question will not be raised again in the foreseeable future. Certainly the experience of the last few months of no open outcry will be called in evidence by proponents of ditching it. Anybody who doubts that the historical record shows that open outcry has, so far and in the end, prevailed over other price discovery methods should read one or two of the available historical and analytical books on the subject. (Preferably including my book “Corner”!)
So now is a good time at which to take a clean sheet of paper and review what, if anything, open outcry can still offer that is not available otherwise. With the increasing speed of electronic trades, the old argument that open outcry is the fastest method of finding where the market is at – and more importantly where it is going – is wearing thinner and thinner. Increasingly defenders of open outcry will need to make much of that least definable of forces – market sentiment.
And at this point I cannot help letting my prejudices show. If you once kill open outcry you need to be sure you can find something to replace it fully. Because a market that is any less sensitive than the present LME to that elusive factor – market sentiment – is itself open to be replaced by any other market that somebody likes to start up.