This article was written by Martin Hayes. All views and opinions expressed are strictly his own.
In the dying days of 2024, the reduced ranks of London Metal Exchange (LME) ring-dealer members (RDMs) are going to be boosted by a new entrant – US-headquartered Clear Street.
This is not exactly a surprise, as this move has been in the air since October’s LME Dinner Week, and the firm is said to be making hires from another floor trader Sigma Broking. But it does go against the grain of most of the last quarter century, in that exits from the open-outcry floor have far outnumbered fresh joiners – the previous newcomer was Sigma itself in 2022, the first new RDM in a decade.
Nevertheless, Clear Street UK, which has gained UK FCA (Financial Conduct Authority) approval and acceptance by the LME, now takes the number of Category One RDMs back up to eight – earlier this year France’s Socgen gave up RDM status to become a Category Two Associate Broker Clearing Member (ABCM).
There are 30 ABCMs – firms which have all the rights and privileges of LME membership, save trading on the open-outcry floor. This tier is usually favoured for newcomers.
But Clear Street’s move straight into the top tier of the Exchange does mark a significant development.
Its overall modus operandi is radically different from that of what can be described as the traditional LME member - in a nutshell it operates a Cloud-based clearing and custody system, which is designed to modernise the brokerage ecosystem, and upgrade technological infrastructure across capital markets. From April, this has incorporated futures and clearing services.
In many ways, however, Clear Street’s entrance to the LME, albeit at the top end of the Exchange’s tiered membership structure, underlines the changing nature of what is still the world’s largest metals market.
For some years now, there have been member firms specialising in algorithmic and quantitative trading, alongside the usual long-established niche metal brokers and traders. And the LME itself is no longer just a primary non-ferrous metal, physical delivery and warehousing regulated exchange.
There are now a multitude of contracts and products, ranging from cash-settlement to PRA (Price Reporting Agency) discovery encompassing ferrous, EV materials, scrap and precious metals.
The trading background has long moved on as well – Select, the electronic platform is now a quarter of a century old and due to be upgraded soon. Alongside the inter-office market and open-outcry trading, there is much scope for more technological advancement, amid blockchain accounting and order-books and, crucially, as AI evolves further.
So, there is plenty of scope in the LME’s widening trading and business footprint for more diverse participants. However, the top end of this hybrid structure – being an RDM - will require expertise and experience in not only grasping up-to-the-minute modern technological trends and developments, but also the nitty-gritty of daily face-to-face floor trading.
That could well be the challenge for Clear Street when it eventually takes its place on the floor at Finsbury Square in London, and time will tell how that plays out. More immediately, however, it should boost liquidity and transparency during the open-outcry sessions, especially for the daily reference prices.
Also, by raising RDM numbers back to eight it provides a new buffer against the floor closing for good, which would be triggered by floor traders falling to just six firms. That is still likely sometime in the future – but that landmark event has perhaps been delayed now.
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