Fifteen years ago there was discontent among members as the London Metal Exchange was getting ready to offer electronic trading of contracts.

History: lessons from the past
Fast forward to now, and there are objections again as the bourse plans to adjust the order-to-trade ratio on third-Wednesday prices in the hope of attracting new volumes on to the exchange, as happened back at the start of the century when LME Select was launched.

The first trading of electronic contracts in 2000 were the sparks that lit up the LME. How did electronic trading start? What drove the development? And who? Metal Bulletin editor Alex Harrison talked to some of the pioneers to answer those questions.

A first trade of five tonnes of nickel on Spectron’s platform in June, culminating with 65,000 lots traded by the end of that year, encouraged the LME to launch its own platform in 2001. In 2014, more than 177 million lots were traded on LME Select.

Clearly those who had initially opposed the move to electronic trading were now converted, but worries are surfacing once more as the LME moves to further develop electronic interest in the market, whether for good or ill, as Metal Bulletin illustrated in a series of articles last week.

Caution
Voicing his concerns about the monthly dates in Metal Bulletin was the exchange’s former ceo Martin Abbott, who thinks the LME could be making a big mistake, while Sucden Financial ceo Michael Overlander argued that the exchange is taking a gamble.

Taking on the debate
On the other side stood the current ceo Garry Jones who told Andrea Hotter that members should not fear the promotion of third-Wednesday date.

Matt Chamberlain, the head of business development for the LME, says that the objective is to capture the potential of monthly-date trading without disturbing its market structure.

Even the big boss joined in. Charles Li, the ceo of Hong Kong Exchanges & Clearing – the ultimate owner of the LME – said that he is trying to grow the bourse’s trading arena for the benefit of the business as a whole, not for the exclusive benefit of its members.

Metal Bulletin columnist Lord Copper, meanwhile, refrained from saying whether he believed the change was for better or worse, but reiterated his belief that the LME is reaching a fork in the road. A decision has to be made about whether the LME should be pushed towards uniformity for the interest of the investment community generally, or maintain its idiosyncratic nature in the interests of its members and long-time users. He was adamant, however, that these two possibilities cannot exist together.


James Heywood
jheywood@metalbulletin.com