This article was written by Martin Hayes. All views and opinions expressed are strictly his own.
And so it goes on. Whether to permanently close or re-open the ring? Or how about changing margining methodology? Likewise, should there be more depth and transparency in inventory reports, coupled with position limits further down the curve?
All of these were up for grabs in the LME’s Market Structure discussion paper, and there were plenty in the business with something to say – the exchange last Friday described feedback as ‘unprecedented’ with 192 individual responses, no less.
That may well have muddied the waters, and, as regards closing the floor, come up with some surprising resistance. This is no bad thing, however, as is perhaps pausing and thinking and waiting until early-June to publish the outcomes.
To some extent the LME can consider at its leisure many of the proposed structural changes it envisages. But re-starting open-outcry trading is more immediate, and this particular can cannot really be kicked into the long grass.
One would have anticipated that Category One Members would largely be opposed to closure, but it was perhaps not predicted that the likes of China’s Minmetals, the IWCC, various secondary metal bodies and Glencore would line up in opposition as well.
That’s quite a wide body of opinion, and even if one of the reasons is that electronic-only trading is another step away from a metal industry-friendly trading and hedging vehicle towards a model more attuned to financially-based speculative HFT and algorithmic business, the LME has much more food for thought.
For now, UK coronavirus restrictions are still dictating whether to bring back open-outcry trading – Finsbury Square’s physical floor is tightly-confined, so social distancing constraints are in play.
As well, most people are familiar with the UK Government’s roadmap out of lockdown, and the various stepping-stones to ending many, if not all, of the restrictions of the last 14 months. These apply to the LME, which re-iterated its floor re-opening stance last week.
The requirement for reduced virus transmission and vaccine availability and rollout are now becoming a reality, so it can be said that those boxes are being ticked – there is no real need for a yet to be invented super-duper technological solution to stand in the way or ringing the bells on the floor.
Depending on vaccine roll-out in the UK, it may be late July when all adults will have been offered a first dose – longer for the second doses to go into arms. There is an old saying ‘ifs and ands make pots and pans’ – but it is not inconceivable that if all the medical and social distancing boxes were ticked, then a floor re-opening could be seen in the autumn in the run-up to LME Week 2021 – a nice touch.
However, and this is where it gets sticky, less certain is the final stricture – a meaningful number of the nine ring dealing firms need to be willing to return, and they have to account for more than 60% of 2019’s Ring turnover. Whether that is a tall order, only the data can tell.
But what if this final part of the jigsaw is unclear and too close to say one way or the other? Then it may come down to what in cricket is called ‘umpire’s call’ – in other words the board and the Executive body have the final decision.
That is a tough one – after all, you can’t please all of the people all of the time.