Societe Generale International has announced its decision to withdraw from the London Metal Exchange's (LME) open-outcry trading floor, known as the "ring," a move that has sparked concerns about the future viability of this historic trading venue. The LME, the world's oldest and largest market for industrial metals, confirmed the news on August 23, 2024.
This departure leaves only seven members operating within the LME ring, a significant decline from its peak of around 30 members in the late 1980s. The ring, renowned for its iconic circle of padded red leather seats, has long been a hub for traders who engage in intense five-minute sessions using traditional hand signals to trade key metals such as copper, aluminium, zinc, lead, nickel, and tin.
The daily prices on the LME trading floor serve as the global benchmark for metals producers and consumers in their physical supply contracts. However, the steady reduction in membership has shadowed the ring's future, the last remaining open-outcry trading venue in Europe.
According to an official statement from the LME, Societe Generale will relinquish its status as a ring-dealing member and transition from a Category 1 to a Category 2-member effective August 27. This shift reflects the broader trend of electronic trading increasingly dominating the market, challenging the relevance of traditional trading practices in a rapidly evolving financial landscape.
Category 2 members can trade using the LME's electronic system for their own accounts and on behalf of clients, and they are also members of the LME clearing house. Societe Generale declined to comment, but a source close to the bank indicated that there would be no change in its support for metals clients.
Two years ago, the LME lost ED&F Man Capital Markets as a ring-dealing member following its acquisition by fellow member Marex. In 2021, the LME announced that if the number of Category 1 members drops below six or their trading in the second ring decreases to less than 75 per cent of the previous year's volumes, the ring could be dissolved, and official pricing would shift entirely to the electronic system.
The London Metal Exchange stated, "The LME confirms that neither of these ring price liquidity event criteria has been met as a result of this announcement."
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