In an age of fintech, LME hangs onto tradition as the world’s only open outcry trading ring. The Bentley of the trading world?

Not traditionally known for high technology or innovative methods of conducting business, London’s exchanges trod a very different path their transatlantic counterparts in New York and Chicago during the early Millennial years. Whereas CME Group Inc (NASDAQ:CME) and Intercontinental Exchange Inc (NYSE:ICE) intentionally styled themselves as institutional technology providers for the digital exchange sector, Britain’s venues […]

Not traditionally known for high technology or innovative methods of conducting business, London’s exchanges trod a very different path their transatlantic counterparts in New York and Chicago during the early Millennial years.

Whereas CME Group Inc (NASDAQ:CME) and Intercontinental Exchange Inc (NYSE:ICE) intentionally styled themselves as institutional technology providers for the digital exchange sector, Britain’s venues remained true to their iconic roots with suited traders adorning the trading floor, known colloquially as ‘the ring’, with a telephone placed over each ear, conducting trades via voice conversations and by giving hand signals to dealers.

This process was very slow to die out in London, and in one instance, still exists.

London Metal Exchange (LME) moved to its new, ultra modern premises in Finsbury Square, very close to the fintech center which has become known as Silicon Roundabout after twenty years at its previous headquarters.

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My days behind the wheel of this 2006 Continental were a reminder that tradition was a thing of the past (Copyright FinanceFeeds)

The new premises embodies the luxurious and contemporary appointments of a modern financial institution, whilst still housing an open outcry ring which was opened with a message from the company stating “we are embracing the future, whilst retaining the tradition.”

This new premises reminds me of a journey I once took  in a (then brand new) 2001 Bentley Arnage T, which was new at the time. The Arnage T was one of the very last traditional Bentleys, and as I pressed the pedal to make what could only be described as stately progress, the 6750cc twin turbo V8 whose architecture dates back to the 1950s hauled the three ton, hand-built leviathan to speed quicker and in a more dignified fashion than any of the imported, mass produced and much more modern vehicles which surrounded it during a busy London highway at 9,30am.

The interior of the Bentley Arnage T contained that uniquely British concoction of wood and leather which filled the senses and appealed to sight and smell, and the view along the long, sculptured engine cover evoked an era of gentlemanly motor sport and upper class aristocracy, whilst combining age-old British engineering with the modernity of an Alpine audio system and high resolution satellite navigation.

When Bentley switched its corporate ethos toward the new method of using mass produced engines from anodyne manufacturer VW and sharing platforms with somewhat ordinary products, the magic was lost, and the product became an also-ran. This 2006 Continental Flying Spur (driven by me one cold, London morning), felt like any other computerized, mass made product, apart from the famous winged B on the steering wheel, and thus the magic is lost.

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LME’s pupose-built trading ring in Finsbury Square combines modern opulence with traditional trading methodology

This is perhaps the most similar experience to the interior of today’s London Metal Exchange, which is circular, and surrounded by high definition curved screens which display the real-time prices of all tradeable assets, whilst traders concentrate on getting the right deal from the comfort of semi-circular red leather seats.

London Metal Exchange is something of an institution, having been in existance for 139 years. Throughout the heyday of the 1980s, the venue was in its prime, the day of the beige bakelite Motorola cellphone and pinstripe suit was well and truly in full swing across London, and traders on the floor spent their time between ‘the ring’, SW3 and Hampshire whilst the M3 motorway was lined with Zinnobar Red BMW 325is and Laser Green VW Golf GTis.

LME seeks to retain the iconic standing of the trading floor, whilst introducing some new technologies which complement the open cry facility such as the combination of digital and physical trading which can be conducted on the floor via ‘super booths.’

Barclays and JPMorgan are among institutions that have exited the LME open outcry trading arena, however it is now looking to grow further. Since relocating to Finsbury Square on February 1, the exchange is looking to broaden its product range of industrial commodities, whilst boldly stating that it seeks to remain as “not a fully electronic American exchange.”

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The last of the thoroughbreds: Hand-built Bentley Arnage T is as quintessentially powerful and British as LME’s outcry trading ring

The focus for moving foward will include an increase in liquidity, despite acknowledging that the lifespan of such a venue is constantly called into question.

LME CEO Garry Jones has remained steadfast in his belief that open cry trading has a future, categorically telling many mainstream media sources that there is no argument over whether LME will close the ring, and that as the market evolves, LME will tailor the trading floor to suit it.

Remaining strictly institutional, LME has no plans to open up its exchange to retail traders. Mr. Jones stated

“Retail trading in China on exchanges is popular, but we’re not going to do it. All trades have to go through bank members.”

Volumes at LME have remained relatively flat recently, and LME has reviewed on several occasions the viability of keeping the ring, especially since the firm’s acquisition by Hong Kong Exchanges and Clearing three years ago.

As the old stalwart soldiers on, albeit in new, luxurious surroundings, it is refreshing to see an age old tradition still forging its way ahead in an increasingly digital world.

 

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