The
London Metal Exchange or
LME is the
futures exchangeA futures exchange or derivatives exchange is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.-History...
with the world's largest market in
optionIn finance, an option is a contract between a buyer and a seller that gives the buyer the right, but not the obligation, to buy or to sell a particular asset on or before the option's expiration time, at an agreed price, the strike price. In return for granting the option, the seller collects a...
s, and
futures contractFutures contract, in finance, refers to a standardized contract to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price . The contracts are traded on a futures exchange. Futures contracts are not "direct" securities like stocks,...
s on
baseIn chemistry, the term base metal is used informally to refer to a metal that oxidizes or corrodes relatively easily, and reacts variably with diluted hydrochloric acid to form hydrogen. Examples include iron, nickel, lead and zinc. Copper is considered a base metal as it oxidizes relatively...
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, it also allows for cash trading. It offers
hedgingIn finance, a hedge is a position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the goal of minimizing one's exposure to unwanted risk...
, worldwide reference pricing and the option of physical delivery to settle contracts.
It is located at 56
Leadenhall StreetLeadenhall Street is a major street in the City of London.It runs from Cornhill to Aldgate. Aldgate Pump is at the junction with Aldgate. Historically it has been the location of Lloyd's of London and the East India Company...
,
London[]London is the capital of England and the United Kingdom. It has been a major settlement for two millennia, and the history of London goes back to its founding by the Romans, when it was named Londinium. London's core, the ancient City of London, the 'square mile', retains its medieval boundaries...
.
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 ExchangeRoyal Exchange may refer to:* Royal Exchange a major mixed use regeneration scheme in the North East Quarter of Belfast City Centre* Royal Exchange, Manchester, a 19th century classical building...
.
The
London Metal Exchange or
LME is the
futures exchangeA futures exchange or derivatives exchange is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.-History...
with the world's largest market in
optionIn finance, an option is a contract between a buyer and a seller that gives the buyer the right, but not the obligation, to buy or to sell a particular asset on or before the option's expiration time, at an agreed price, the strike price. In return for granting the option, the seller collects a...
s, and
futures contractFutures contract, in finance, refers to a standardized contract to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price . The contracts are traded on a futures exchange. Futures contracts are not "direct" securities like stocks,...
s on
baseIn chemistry, the term base metal is used informally to refer to a metal that oxidizes or corrodes relatively easily, and reacts variably with diluted hydrochloric acid to form hydrogen. Examples include iron, nickel, lead and zinc. Copper is considered a base metal as it oxidizes relatively...
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, it also allows for cash trading. It offers
hedgingIn finance, a hedge is a position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the goal of minimizing one's exposure to unwanted risk...
, worldwide reference pricing and the option of physical delivery to settle contracts.
It is located at 56
Leadenhall StreetLeadenhall Street is a major street in the City of London.It runs from Cornhill to Aldgate. Aldgate Pump is at the junction with Aldgate. Historically it has been the location of Lloyd's of London and the East India Company...
,
London[]London is the capital of England and the United Kingdom. It has been a major settlement for two millennia, and the history of London goes back to its founding by the Romans, when it was named Londinium. London's core, the ancient City of London, the 'square mile', retains its medieval boundaries...
.
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 ExchangeRoyal Exchange may refer to:* Royal Exchange a major mixed use regeneration scheme in the North East Quarter of Belfast City Centre* Royal Exchange, Manchester, a 19th century classical building...
. At first, only
copperCopper is a chemical element with the symbol Cu and atomic number 29.It is a ductile metal with very high thermal and electrical conductivity. Pure copper is rather soft and malleable and a freshly-exposed surface has a pinkish or peachy color...
was traded,
leadLead is a main-group element with symbol Pb and atomic number 82. Lead is a soft, malleable poor metal, also considered to be one of the heavy metals. Lead has a bluish-white color when freshly cut, but tarnishes to a dull grayish color when exposed to air...
and
zincZinc , also known as spelter, is a metallic chemical element; it has the symbol Zn and atomic number 30. It is the first element in group 12 of the periodic table. Zinc is, in some respects, chemically similar to magnesium, because its ion is of similar size and its only common oxidation state is +2...
were soon added but only gained official trading status in 1920. The exchange was closed over
WW IIWorld War II, or the Second World War , was a global military conflict which involved a majority of the world's nations, including all great powers, organized into two opposing military alliances: the Allies and the Axis...
and did not re-open until 1952. Other metals traded extended to include
aluminiumAluminium or aluminum is a silvery white and ductile member of the boron group of chemical elements. It has the symbol Al; its atomic number is 13. It is not soluble in water under normal circumstances....
(1978),
nickelNickel is a chemical element, with the chemical symbol Ni and atomic number 28. It is a silvery-white lustrous metal with a slight golden tinge. It is one of the four ferromagnetic elements at about room temperature, other three being iron, cobalt and gadolinium...
(1979), aluminium alloy (1992) and
steelSteel is an alloy consisting mostly of iron, with a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most cost-effective alloying material for iron, but various other alloying elements are used such as manganese, chromium, vanadium, and tungsten...
(2008). The exchange also started trading plastics in 2005. The total value of the trade is around $US 10.24 Trillion annually.
Facilities
If you want to produce, or trade copper or tin, or whatever listed on the LME, you can sell the metal to one of the many big warehouses of the LME, all over the world, and receive a warrant. This is a way to share the cost of these warehouses between the many industry participants and make it more efficient, to compete against other products.
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: 11:45 - 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’, a term used to describe 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.
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 2000 Financial Services and Markets Act, and are regulated by the
Financial Services AuthorityThe Financial Services Authority is an independent non-governmental body, quasi-judicial body and a company limited by guarantee that regulates the financial services industry in the United Kingdom. Its board is appointed by the Treasury. Its main office is based in Canary Wharf, London, with...
.
Ring Dealing Members are
ClearingClearing is the act of making or becoming clear. It may also refer to:* Clearing , a tract of land with few or no trees in the middle of a wooded area, synonym of "glade"* Deforestation, the clearing away of trees to make farmland...
Members, who hold the exclusive right to trade in the ring;
- Amalgamated Metal Trading Limited
- Barclays Capital
Barclays Capital is a leading global investment bank. It is the investment banking division of Barclays plc which has a balance sheet of over £1.2 trillion . Barclays Capital provides financing and risk management services to large companies, institutions and government clients. It is a primary...
- ED & F Man Commodity Advisers Limited
- MAREX Financial Limited
Marex is a leading independent specialist broker focused on Commodities, Financial Futures and Foreign Exchange. Marex provides voice and electronic execution and clearing services for commodity markets in metals, energy and agricultural products and the financial futures and foreign exchange...
- Metdist Trading Ltd
- MF Global UK Limited
- Natixis Commodity Markets Limited
- Newedge Group (UK Branch)
- Société Générale
Société Générale is one of the main European financial services companies and also maintains extensive activities in others parts of the world. Its registered office on Boulevard Haussmann in Paris, while its headquarters are in the Tours Société Générale in the business district of La Défense and...
- Sucden Financial Limited
Sucden Financial Limited is a commodities, financial futures and options broker, operating for over 35 years. Founded in 1973, Sucden Financial 's parent is Sucres et Denrées SA, a company incorporated in France...
- The Royal Bank of Scotland plc
- Triland Metals Ltd
Markets
There is constant inter-office trading, but a lot of trading is still done by open-outcry in the Ring. There is a morning and an afternoon trade, where each of the eight metal contracts are traded in two blocks with a five-minute session for each contract (the sessions last from 11.45 until 13.15 and from 15.10 until 16.35, each session includes a 10-minute break). The second trading block in the morning is key to setting the Daily Official Exchange rates. After the official trades, there is 15 minutes of "kerb" trading. Trades are in
futuresFutures contract, in finance, refers to a standardized contract to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price . The contracts are traded on a futures exchange. Futures contracts are not "direct" securities like stocks,...
,
optionsIn finance, an option is a contract between a buyer and a seller that gives the buyer the right, but not the obligation, to buy or to sell a particular asset on or before the option's expiration time, at an agreed price, the strike price. In return for granting the option, the seller collects a...
and TAPOs (traded average-price options, a form of
Asian optionAn Asian option is a special type of option contract. For Asian options the payoff is determined by the average underlying price over some pre-set period of time...
).
In addition to the 12 companies who have exclusive rights to trade in the Ring, around 100 companies are involved in the LME in total.
Contrary to popular belief, the precious metals,
goldGold is a chemical element with the symbol Au and an atomic number of 79. It has been a highly sought-after precious metal for coinage, jewelry, and other arts since the beginning of recorded history. The metal occurs as nuggets or grains in rocks, in veins and in alluvial deposits. Gold is...
and
silverSilver is a chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
, are not traded on the London Metal Exchange, but on the
over-the-counterOver-the-counter trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties...
market usually referred to as the
London Bullion MarketThe London bullion market is a wholesale market for the trading of gold and silver. Trading is conducted amongst members of the London Bullion Market Association , loosely overseen by the Bank of England. Most of the members are major international banks or bullion dealers and refiners...
, by the members of the London Bullion Market Association.
PlatinumPlatinum is a chemical element with the chemical symbol Pt and an atomic number of 78. Its name is derived from the Spanish term platina del Pinto, which is literally translated into "little silver of the Pinto River." It is in Group 10 of the periodic table of elements...
and
palladiumPalladium is a chemical element with the chemical symbol Pd and an atomic number of 46. Palladium is a rare and lustrous silvery-white metal that was discovered in 1803 by William Hyde Wollaston, who named it after the asteroid Pallas, which in turn, was named after the epithet of the Greek...
are traded on the London Platinum and Palladium Market. Minor metals are not yet traded on the LME but the exchange announced that they will begin trading Cobalt and Molybdenum. Many companies involved in minor metals are members of the Minor Metal Trade Association.
Electronic trading
The LME finally launched an electronic platform called LME Select. 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.
External links