Memories From The Ring
For nearly all my working career in the City, I have been closely involved with the London Metal Exchange (LME) and reporting from its open-outcry trading floor, the world-famous ‘Ring’.
Martin Hayes (rear center) reporting from the LME floor in the late 1970s
I first went down there in 1975 and, although the LME has moved shop twice since then – and will do so again this month – this type of trading remains essentially unchanged.
Open-outcry markets in general, and the LME in particular, were an eye-opener back then – everyone dressed and looked like Regan and Carter from The Sweeney, with nostrils and trousers flared. Or – if that is too retro – Gene Hunt from Life on Mars.
I actually came from a trading background, but that was the old London Stock Exchange, where business was carried out in an unhurried, genteel manner – “my word is my bond” was the unwritten law, the buying and selling of stocks and shares was very gentlemanlike, and the odd bowler hat was still to be seen around Throgmorton Street.
Not so when I joined a world-famous news agency whose name rhymes with “loiters”. Within days I was dispatched to the cluster of markets in and around the City, where the catchphrase was “my yell is my bond”. That applied to a bewildering array of markets that included cocoa, coffee, sugar, rubber, oil products and oddities such as wool, tea and ship chartering. And, of course, there was the LME.
They all had one thing in common – I didn’t have the first clue what was going on in any of them or why grown men were carrying on in this way. But, and this is where my trader background kicked in, I figured out that this was actually a logical and very efficient way to do commodity business – none more so than in metals, with the system of daily prompt dates and warehousing that carries on to this day.
Back then in Leadenhall Market, opposite The Lamb public house, the familiar ring with its red leather seats was more densely occupied. Now there are just nine ring-dealing members, but in the late 1970s that number was nearer 30.
Some of these companies are long gone now, but their names were redolent of the LME’s origins and founding fathers – Rudolf Wolff and Co, Lazarus Metals, HP Thompson and Philipp and Lion. For many of these firms, descendants of their founders even worked as traders and, in the latter’s case, still do.
The traders, too, were older than their modern-day counterparts and often senior directors of their firms – wheeling and dealing well into their fifth and sixth decades. So at any given time you could see one particular trader (George Hall) who was virtually deaf in one ear. He would be merrily trading away with half the ring while the other half were increasingly red in the face desperately trying to get his attention.
Or how about Graham Slater in the last minute of a very hectic official copper ring? At just after 12:34, as he upped the volume, his dentures flew out of his mouth and landed in the middle of the ring. Business carried on until the bell at 12:35, which of course was the signal for copper to finish and Graham to retrieve his teeth amid the delayed laughter.
Graham was lucky that his top-set did not land in the centerpiece of the ring, which was a copperplate ash-tray. It’s difficult to imagine now, but back then smoking was allowed in business premises, with the start of the curb ‘light-up’ time. Discarded cigarettes were routinely and expertly flicked into the ash-tray, which smoldered away while trading was going on – not the nicest place for your false pearly-whites to land.
Even so, for the traders then, who recall that era, the exchange had a uniqueness that set it apart from all other terminal markets of the time. Each broker – and remember there were more than 30 ring-dealers at that time – had a small booth on the wall. Traders had to recognize the sound of their own telephones before numbered indicators were installed.
Photo of the LME ring at Leadenhall Market
As well, not all the booths were the same distance from the floor. Some – like Billiton Metals’ – were around three yards away, offering great visibility, but Continental Ore’s was located 15 yards away at the end of a corridor.
So the ‘tic-tac’ hand signals were commonplace to indicate market fluctuations from the ring to the phone. For Continental Ore it was useful that Derek Adler was over six feet tall and had a clear view of the action.
And as there was no air-conditioning then – the ceiling propeller-style fans merely moved the stale air around – a side door into an adjacent avenue was often left open for fresh air. Not only air came in that door: the occasional dog, Leadenhall Market’s resident tramp and even charity sellers would pop their heads in.
Despite all these distractions, the ring then, as it does now, functioned professionally, welcoming its first female trader, Geraldine Bridgewater, who initially had a tough time making her mark in an exclusively male arena, where chauvinism was commonplace among many of the old guard.
Soon after, the LME clocked up its 100th birthday in 1978 and then made plans to decamp from its original home. This was because that first LME floor dated from 1882, when the exchange moved into premises in Whittington Avenue specifically designed for trading.
Pictures dating back to that time show frock-coated worthies with large top hats and even bigger beards dotted around what looked like a Victorian conservatory.
Photo of the LME at Leadenhall Market in the 19th century
So, the LME decided to move to plush new premises in Plantation House – a stone’s throw away near Fenchurch Street Station.
That was in September 1980, when the best-selling single in the UK was Start! by The Jam, a bunch of spiky new-wavers who were sweeping away the musical old guard that had prevailed for the previous decade. It was also the time when the LME was making a fresh start as well after the move from the Victorian-era Leadenhall Market.
It was a time of big hair, bulky shoulder pads and fancy jackets – and that was just the commissionaire on the front door, whose job was to keep out the various itinerants and dogs that had wandered into the old market. He also had the task of ringing a bell at 17:00 to close proceedings for the day.
The market itself had had a revamp – the ring and its red leather seats was still center-stage, but the overall appearance was brighter, more modern and in keeping with the times – all the brokers had individual booths with flickering Reuters screens (a nice bit of product placement, incidentally).
There was, too, a visitors’ gallery overlooking the floor. In the afternoons it was not unusual for sweets to be dispensed liberally to the throng below. Although on one occasion a disgruntled investor broke one of the windows in anger about being on the wrong side of a price squeeze.
Outwardly, the decade change and new home did little to change the nature of the LME’s business at first – there were still around 30 firms, and much of the date structure that had stood the test of time was the same.
Traders still took advantage of the 10-minute interval between the end of the first rings and 12:30 copper official ring for a swift half-pint across the road at The Wine Lodge, whose takings received a boost when the LME and other markets pitched up in Plantation House – the London Gold Futures Market and London Coffee Market were located there as well.
But, subtly, the nature of the financial world was changing all around, as the “Big Bang” on the fusty old London Stock Exchange beckoned. On the LME, too, business flows and practices changed – there was the rise of the commission houses and names like ACLI and Drexel Burnham Lambert.
More female traders were also in evidence, following the example set by Geraldine. Now there were several others – Valerie Tunmer, Jenny Shepherd, Kate McGregor and Cathy Markey, to name just four – who more then held their own against their male counterparts.
Geraldine at the LME Ring
And there were now bigger speculative plays taking place on the market. Some of the traders were larger than life as well – many would make names for themselves during the seismic market events of the next two decades.
One of these was just around the corner in the 1980s – the October 1985 Tin Crisis, which took the LME completely unawares and came very close to bringing the exchange down. Like the French collapse in 1940 and the Maginot Line mentality, the LME was found wanting in the face of a serious financial meltdown surrounding the smallest of the exchange’s contracts.
While tin may have been small, it was a market where the economics of supply and demand had been put aside for many years by a price support operation carried out by the multi-governmental International Tin Council (ITC).
Quite simply, the ITC Buffer Stock Manager (BSM) ran out of money and imaginative ways of borrowing against unpaid and over-collateralised warrants to support the price at artificially high levels, while the 22 sovereign governments supposedly standing behind him cocked a collective deaf ear when he reached the end of the line.
On that October day, the BSM rang the LME to say the game was up and then left his office for good. LME then-CEO Michael Brown wandered into the Reuters office – also located in Plantation House – to hand over a brief notice that said the ITC was no longer supporting the market.
The panic-stricken days that followed saw a crash in the price of tin, the suspension of the contract and a default that amounted to more than £800 million. And since the LME was an uncleared market, losses had to be borne by individual firms.
It was around this time that some of the LME’s senior players stood up to be counted and worked tirelessly to tackle this crisis. Jacques Lion and Ralph Kestenbaum – to name just two – were instrumental in their efforts to manage and resolve the situation.
Even so, when outstanding tin contracts were settled at the famous ‘ring-out’ – a price that was midway between the high pre-suspension level and weak free-market value that emerged – there were inevitable winners and losers. Many firms pulled off the ring, while others merged or were taken over by stronger rivals; it would not be until 1989 that there was a settlement to creditors of just 30 pence in the pound and tin’s return as an LME contract.
Institutional changes came about as well – the LME’s somewhat cumbersome two-tier corporate governance structure was swept away, while a primitive form of cash clearing was introduced. Market regulation came about with the UK’s 1987 Financial Services Act, which brought the LME under its umbrella of self-regulatory organisations (SROs).
By the end of the 1980s the LME was bruised but it was not all doom and gloom. The aluminium contract launched a decade earlier had gained traction with the industry – it is now the biggest market by volume.
The exchange was also tilting towards a more commercial approach with its structured membership that saw the big financial movers and shakers more committed. The Secretariat, too, was more businesslike, with Michael Brown and David King the first two CEOs.
The top-selling single at the start of 1990 was Do They Know Its Christmas? – a sobering note on which to usher in a fresh decade. For the LME, the 1990s would see another change of premises and, on a serious note, another game-changing crisis.
So again in 1994, the LME packed its bags in Plantation House and relocated to premises in Leadenhall Street, still within the confines of the City of London. And, quite conveniently, next door to the Dion champagne bar and just across the road from the Old Tea Warehouse – a pub to you and me.
Perish the thought, however, that the market boys and girls would be hitting the juice at any given opportunity – 56 Leadenhall Street came with its dedicated smoking room and a well-stocked (alcohol-free) canteen.
Unlike Plantation House – all shiny marble and very much 1980s brashness – the new location had a retro feel in its decor and fittings. It had a ‘lived-in’ appearance from the off, so it was more than apt that the official opening in December 1994 was performed by then-UK Conservative Treasury Minister Ken Clarke – in a well-worn suit and brown Hush Puppies shoes.
By now, 20 years had passed since I first went down onto the LME floor. For those of us on that journey, times and fashions had certainly changed. Back in 1975 it was progressive rock, platforms and flares, but in the mid-1990s it was Britpop and sharp suits.
LME at Plantation House in the early 1990s
Business practices continued to change as well. Regulation was still very much in its infancy – and this was the time when a few big personalities were making their mark on metals such as copper. Of course, there were still ‘grey beards’ sitting in the ring – just not as many as in previous eras.
The belligerence of a younger generation was increasingly making itself felt and, as the LME recovered from the mid-1980s and the Tin Crisis, the ring was still a well-populated place.
There were still companies that represented the ‘founding fathers’ of the LME back in the 19th century – Rudolf Wolff and Co, for example. Equally, there was the new breed, the spin-offs from the UK’s regulatory “Big Bang” – the one-size-fits-all conglomerates such as Deutsche Sharps Pixley and Shearson Lehman.
But it would not have been the LME without a market incident or two to liven up proceedings. Although there were minor skirmishes in zinc where the exchange authorities had to step in to calm things down, the 1990s were the time when copper was almost constantly in the spotlight.
At some stage, market situations – as they can be quaintly called – move from being within the bounds of legality and allowed practices towards unacceptable activity: in other words, outright manipulation.
And while the Tin Crisis ultimately resulted in some costly and expensive litigation (where legal eagles did very well, thank you very much), the International Tin Council’s actions were altruistically undertaken on the basis of multi-country and overall market needs. It was a UN-sponsored commodity pact, similar to those in coffee, cocoa, rubber and sugar.
So step forward the 1996 Copper Crisis. This was a humdinger – a slow burner that would eventually have an even bigger impact and after-effect on the LME than the Tin Crisis. And it was caused by one party.
From the late 1980s onwards into the first half part of the next decade, the copper price seemed to live a charmed life – it was immune to the woes that affected all the LME companion metals in the 1990s recession such as historic declines and loss-making production. As one esteemed analyst put it, “the copper price formed a bridge across the recession.”
Despite high inventories, backwardations continually flared up while an influential operator (a good and safe journalistic phrase but he will be named below) did his thing. He attempted to corner the entire market over many years and eventually succeeded.
The LME board attempted to tackle this, somewhat from left field, by imposing from time to time ad hoc cash backwardation limits – a well-meaning but flawed measure since the board itself was composed of parties with an interest in the market. Inevitably, this led to mutterings that “shorts were being let off the hook.”
Even so, there was a limit to how long this could go on. By mid-1995, UK daily tabloid newspapers were running articles about the lifestyle and activities of ‘Copperfinger’, who ran one of the UK trading firms heavily involved in copper business.
As well, Yasuo Hamanaka, the head trader of Japanese corporation Sumitomo, had the handle of ‘Mr Five Percent’ – this was the percentage of the global copper market he controlled that he maintained was needed for company requirements.
By 1996, a storm was developing in the copper world, with the LME setting up a Special Committee and US and UK regulators starting to sniff around. As well, the various operations – futures, options, off-market trades – designed to maintain Sumitomo’s dominant market position and high price were becoming untenable. The market scented blood.
The denouement in summer 1996 was brutal – it proved impossible to support the price any more. In a series of shattering downward shifts, the copper price collapsed, falling 25% in one day alone. Sumitomo reported losses of $1.8 billion then – and they went much higher – due to 10 years of what it called unauthorized trading, firing Hamanaka.
At the time, this was the largest-ever financial market loss down to a rogue trader, dwarfing Nick Leeson’s £850 million that brought down Barings.
The hapless and apologetic Hamanaka went to jail, while Sumitomo, the LME and US regulators spent several years gradually prizing money out of some of the market’s big names – none of whom admitted liability but paid up nonetheless. And, for the second time in a decade, the legal profession made good money out of this.
The LME itself, again for the second time in 10 years, took a good hard long look at itself and closed the barn doors that the Hamanaka horse had bolted through.
The still-valid and effective regulatory and compliance measures on market positions, warehouse stocks and automatic limits it introduced as a consequence ushered in the 21st century. Since then, there have been hotspots in some metals but never full-scale forest fires.
LME Ring in 2015 at 56 Leadenhall Street
The new millennium was to see many changes in the LME as the metals world recovered from the Copper Crisis. The copper price merely sneezed – it never caught a cold – and everyone started to party like it was 1999.
The LME came through the fall-out from the Sumitomo event with better regulation and market monitoring, courtesy of top-level UK Treasury civil service expertise, and then turned its attention to two fronts – its corporate status and the technology challenge.
Then-CEO David King artfully took the LME down the path towards partial demutualisation – not a full public listing but privately owned not-for-profit share status.
This was finally agreed in September 2000 at an off-base meeting at a City club in Old Broad Street, which a Metal Bulletin reporter, David Eldridge, and I heard about and managed to gate-crash. Ushered to a rooftop party, we were offered glasses of champagne and an impromptu interview with LME chairman Raj Bagri.
The companies there were the LME’s top members – ring dealers and broker clearers – who took up 250,000 shares nominally valued at just 10 pence. With hindsight, and remember that valuation, it was well worth celebrating with a glass of vintage shampoo.
Why the more businesslike approach? Well, the world of financial exchanges in London, Europe and the US was changing rapidly and radically. The well-established and somewhat traditional agricultural and shipping markets were being shaken up by brash newcomers in oil and financial futures – multi-colored jackets and US-style trading pits, mostly.
And they were not averse to a bit of merger and acquisition, whether the target liked it or not. Who now remembers the LCE (London Commodity Exchange), BIFFEX (Baltic International Freight Futures Exchange) and even the IPE (International Petroleum Exchange)?
Odd as it seems, LIFFE (The London International Financial Futures Exchange) acquired the London coffee, cocoa and sugar markets (it still runs them) so anything went in the world of exchange M&A. But, given the uniqueness of the LME and its prompt date structure – still a difficult concept to get across today – it was never really a ‘must-have’ target a decade or so ago.
But where the LME had a headache was in facing the world of technology, where change at the turn of the century was terrifyingly fast – the worldwide web and nasty electronic trading potential had exploded into the business arena. The boys and girls on the trading floor were getting worried.
This was because – despite more than 100 years of history, new premises, contracts and corporate makeovers – the LME modus operandi had hardly changed. If Rudolf Wolff himself had jumped in a time-machine and pitched up in 2000, all he would have needed to do was ditch his top hat and frock coat for an Austin Reed pinstripe double-breasted number, take half an hour or so for a number check, sit in the ring and trade – and not feel out of place.
Savvy tech rivals were lining up as well. Emetra, an online exchange, popped up with metal storage potential. More directly, broker Spectron rolled out a relatively primitive but highly effective trading platform for three-month metal at a cost of less than £100,000, which captured growing amounts of business.
The LME actually had an emergency electronic platform in its back pocket but kept it quiet until February 2001, when LME Select was launched. Like Spectron, this was at first rudimentary and simple, but over the years it developed to the extent where the screen replicates and offers everything that trades on the floor.
But unlike other markets in Europe, Select has not been able to deliver a knockout blow. Technology accounted for softs – now part of LIFFE’s electronic marketplace, like all the financial futures. And ICE (Intercontinental Exchange) bought the IPE and whacked the oil market onto screens without much ado.
The LME floor, while not exactly flourishing, remains. Over the noughties, activity has dwindled there, with more than 80% of outright business now taking place on the screen. But the key trades – the reference prices and end-of-day valuations – are still discovered on the floor, now the last of its kind in Europe.
So that floor is still around. The LME’s new owners – HKEx (Hong Kong Exchanges and Clearing Ltd) – promised its retention to 2015 at least as part of their takeover. That’s right – in 2012, more than 135 years of LME independence came to an end when member/shareholders accepted a £1.388 billion bid from the Chinese exchange, which itself only came into being in June 2000.
LME CEO Martin Abbott had taken the exchange along a more commercial route since 2007 – a business plan, dividends to shareholders and bringing all of the ancillary systems in-house, including lucrative clearing.
That made the LME an attractive asset, and in 2011 there were more than 15 parties after a piece of that action. The winners paid handsomely: the price equated to £107.60 per share – the very same LME shares that were a nominal 10 pence back in 2000. JP Morgan had 1.4 million shares – do the maths yourself – so no wonder the champagne corks popped in the summer of 2012.
Neatly, that brings the past up to the present – what remains is the future. It is now 40 years since I first went down the LME. Some of the people back then, like me, are still around on the floor – with less hair and wider waistlines, perhaps. But, like the market, adapting and functioning.
Not many, though, as the LME moves once again to Finsbury Square. Only a handful of veterans will also notch up the milestone of having been on the open-outcry floor in all of its locations.
So – in no particular order – Malcolm Leonard, Gary Wilsher, Mark Hicks, Kim Woodthorpe, Kevin Brazier, John Rumble, Peter Burnett and Kelly Lang have served on all the trading floors.
2016 onward will bring changes and events – maybe like the last 40 years – but they will be for someone else to reminisce about.
Trading taking place in the LME Ring at Leadenhall Street in 2015
Photograph credits: Codelco, LME, Fastmarkets