Investment Banking News

JPMorgan Abandons Floor Trading at the London Metal Exchange

Posted by Anton Murray Consulting on . Posted in Investment Banking News

Eddie Van Der Walt and Javier Blas

JPMorgan Chase & Co. will leave the floor of the London Metal Exchange, the last open outcry trading in Europe, as clients move to electronic trading.

That leaves nine firms, including Societe Generale SA, Sucden Financial Ltd. and INTL FCStone Inc., whose traders meet daily at a ring of red leather sofas at the exchange and shout buy and sell orders for metals, a tradition dating back to 1877. JPMorgan startedLME floor trading after buying RBS Sempra Commodities LLP in 2010.

“It’s always shocking when a floor trader leaves, though not wholly unexpected given the current business environment,” Robin Bhar, an analyst at Societe Generale SA which owns category one dealing firm Societe Generale Newedge UK Ltd in London, said by phone. “This is not an existential threat to the ring. We may well see a Chinese or wider Asian firm taking their place.”

LME, which was bought by Hong Kong Exchanges & Clearing Ltd. in 2012, has sought to preserve open outcry trading since the takeover and made a place for the ring at its new offices. The LME is the biggest metals exchange, with about 82 percent of the world’s nonferrous metals business transacting on its platforms.

Suits, Ties

The exchange has strict rules for the traders who must wear suits, ties and dark shoes. It also records sessions with microphones and video cameras to capture traders barking at one another. Dealers have been fined or suspended for standing up during a session.

The decline in LME members poses a risk to liquidity on the exchange, according toStephen Briggs, an analyst at BNP Paribas SA in London. He said historically there have been 10 to 12 members.

JPMorgan said trading won’t be affected and the bank will continue to facilitate transactions. The bank was previously listed as a Category 1 member and will change to Category 2 immediately, according to the statement. The decision ends a tradition of membership that passed from Metallgesellschaft, the German conglomerate that was one of the largest metals traders of the past century, to Enron Corp. and Sempra.

“Our client preferences have shifted and a very high percentage of our LME contract volumes are now traded electronically,” Michael Camacho, head of commodities at JPMorgan, said in a statement.

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