The London Metal Exchange is the futures exchange with the world's largest market in options
and futures contracts on base and other metals. As the LME offers contracts with daily expiry
dates of up to three months from trade date, along with longer-dated contracts up to 123
months, it also allows for cash trading. It offers hedging, worldwide reference pricing,
and the option of physical delivery to settle contracts. In July 2012, LME's shareholders
voted to sell the exchange to Hong Kong Exchanges and Clearing for £1.4 billion.
It is located at 56 Leadenhall Street in the City of London.
History The London Metal Market and Exchange Company
was founded in 1877, but the market traces its origins back to 1571 and the opening of
the Royal Exchange, London. Before the exchange was created, business was conducted by traders
in London coffee houses using a makeshift ring drawn in chalk on the floor.
At first only copper was traded. Lead and zinc were soon added but only gained official
trading status in 1920. The exchange was closed during World War II and did not re-open until
1954. The range of metals traded was extended to include aluminium, nickel, tin, aluminium
alloy, steel, and minor metals cobalt and molybdenum. The exchange ceased trading plastics
in 2011. The total value of the trade is around $US 11.6 trillion annually.
Many deals are made for commodities to be delivered in three months' time. The custom
stems from the time that copper cargoes originally took in 1877 on their voyage from the ports
of Chile. Commodities traded
The LME offers futures and options contracts for aluminium, aluminium alloy, NASAAC, cobalt,
copper, lead, molybdenum, nickel, steel billet, tin and zinc.
Facilities
To trade contracts in copper, tin, or any other metal listed on the LME, one has to
trade through an LME member. Purchasers of contracts, which are then left to reach maturity,
will receive a warrant for a specific LME approved warehouse to take delivery of the
metal if required. The LME issues, each day, detailed figures
on how many tons of each metal is in its warehouses, which helps producers and consumers make correct
business decisions. Ring trading
Trading Times: 11:40 — 17:00, London Time Open-outcry is the oldest and most popular
way of trading on the exchange. It is central to the process of price discovery, the way
LME official prices are established. Prices are derived from the most liquid periods of
trading; the short open-outcry ring trading sessions, and are most representative of industry
supply and demand. The official settlement price, on which contracts are settled, is
determined by the last offer price before the bell is sounded to mark the end of the
official ring. There is constant inter-office trading, but
a lot of trading is still done by open-outcry in the Ring. There are a morning and an afternoon
trade, where each of the nine metal contracts are traded in two blocks with a five-minute
session for each contract. The second trading block in the morning is key to setting the
Daily Official Exchange rates. After the official trades of sessions one and two, there are
85 and 45 minutes of "kerb" trading respectively. Trades are in futures, options and TAPOs.
The LME is the last exchange in Europe where open-outcry trading takes place.
Ring Dealing Members Ring Dealing Members are entitled to trade
in the Ring during the ring-trading sessions. They may also operate a 24-hour market by
trading inter-office. All Ring Dealing Members, as members of the London Clearing House, are
authorised under the Financial Services and Markets Act 2000, and are regulated by the
Financial Services Authority. Each metal is traded in its own five-minute period. There
are two sessions every trading day for each metal.
Ring Dealing Members are Clearing Members, who hold the exclusive right to trade in the
ring; Amalgamated Metal Trading Limited
E D & F Man Capital Markets Limited J.P. Morgan Securities Ltd
Marex Spectron Ltd Metdist Trading Ltd
INTL FCStone Europe Ltd Newedge Group
Société Générale Sucden Financial Ltd
Triland Metals Ltd In addition to the 10 companies who have exclusive
rights to trade in the Ring, around 100 companies are involved in the LME in total.
Precious metals Contrary to popular belief, the precious metals,
gold and silver, are not traded on the London Metal Exchange, but on the over-the-counter
market usually referred to as the London Bullion Market, by the members of the London Bullion
Market Association. Platinum and palladium are traded on the London Platinum and Palladium
Market. Both members of the LBMA and LPPM trade the precious metals spot market on EBS—acquired
by ICAP in June 2006. Many companies involved in minor metals are members of the Minor Metal
Trade Association. The LME does, however, provide trade matching
and clearing services to the London bullion market and distributes gold, silver, and gold
IRS forward rates on behalf of the LBMA. Electronic trading
The LME launched an electronic platform called LME Select launched in February 2001.[5] This
was developed by a Swedish software house called Cinnober. The platform is a FIX-based
trading platform, and has a significant and increasing share of the total LME business.
Delivery points As a market of “last resort”, industry
can use the LME’s delivery option to sell excess stock in times of oversupply and as
a source of material in times of extreme shortage. In reality, physical delivery occurs in a
very small percentage of cases on the LME as most organizations use the LME for hedging
purposes. The small percentage which does result in delivery, however, plays a vital
role in creating price convergence. Warehouses
To support this mechanism, the LME approves and licenses a network of warehouses and storage
facilities around the world. Controversy arose in 2013 because the LME took action to limit
the use of its warehouses for the hoarding of aluminum. In March 2014, England's High
Court found for Rusal, the huge Russian aluminum company, striking down these rules.
Warehouse companies must meet strict criteria before they are approved for the handling
of metals. Warehouse Keepers around the world include the following:
Henry Bath [1] Henry Diaper & Co. Ltd Diaper website
Steinweg [2] Metro International Trade Services [3]
Pacorini Metals [4] CWT Commodities Pte Ltd [5]
N.E.M.S Warehousing and Logistics [6] See also
List of futures exchanges References
^ About the LME ^ a b c BBC Radio 4 Today, broadcast 25 October
2011. ^ Northedge, Richard. "130 years of the LME".
LME 130th Anniversary Supplement. Newsdesk Communications. Archived from the original
on 31 October 2014. Retrieved 31 October 2014. ^ "LME achieves another year of record volume".
London Metal Exchange. 5 January 2009. Retrieved 29 July 2009.
^ "Category 1 – Ring Dealing". London Metal Exchange. Retrieved 29 July 2009.
External links LME
LME Ring Dealing Members London Bullion Market Association
London Platinum and Palladium Market Platts Metals Prices / Assessments