LME Wants More Electronic Trading, Deals With Aluminum Warehousing Fallout

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The London Metal Exchange wants to grow its electronic trading marketplace. Executives at the world’s biggest and oldest market for industrial metals believe they can grow it quite rapidly if the right conditions are put in place. Paul MacGregor, the exchange’s head of sales, said at an LME event in Chicago that the group is in a position where it has a good electronic trading platform and good participation in it, but needs more volume.

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The Hong Kong Exchanges and Clearing, Ltd.-owned LME still uses open outcry trading. This system works great for actual metal users, but the professional traders and bank traders that the LME would like to have participating are used to a faster pace.

“The actual financial participants, the so-called algorithmic traders and the market movers, are 10% or less of the marketplace,” MacGregor said in Chicago. “So there is a great potential to get more market participation out of these players.”

To do that, the LME has made some changes. In January, the LME began a consultation on relaxing the order-to-trade ratio on the third Wednesday each month, the standard settlement date. Relaxing the order-to-trade ratio, the thinking goes, would allow greater participation on those Wednesday settlement dates.

In 2014 the LME started releasing market data for research purposes. The exchange also created a new testing platform for traders who want to test strategies using the LME’s electronic marketplace.  To do so they launched LME stage in late 2014, an environment that allows trading strategies to be tested against algorithms in a simulated live market.  They also changed tick sizes in January. Minor metals ticks doubled from 6.25 to $12.50, for example.

“It’s quite hard to build a historical structure of where LME prices were practice strategies without historical data and practice,” MacGregor said. “They can do that with market data.”

Some volume traders will still find participating in the LME’s base metals transactions too slow for their liking, but the changes could draw more players to one of the world’s oldest marketplaces and you can’t fault the LME for trying to increase market participation.

Rusal Pays LME Court Costs

The LME was paid around $2 million by Russia’s UC Rusal after the aluminum producer lost a lawsuit over warehouse reform, according to a filing by HKEx.

The Rusal payment in February will provide a respite from heavy legal fees for HKEx. Its annual results, which included the Rusal payment, showed its legal and professional fees jumped by 20% last year to HK$175 million, mainly due to legal costs of US class-action lawsuits.

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