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Martin Hayes rear centre reporting from the LME floor in the late s. I first went down there in and, although the LME has moved shop twice since then — and will do so again this month — this type of trading remains essentially unchanged. 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.
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. Now there are just nine ring-dealing members but in the lates that number was nearer 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 Business carried on until the bell at Graham was lucky — his top-set did not land in the centrepiece of the ring, which was a copperplate ash-tray.
Discarded cigarettes were routinely and expertly flicked into the ash-tray, which smouldered 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 recognise the sound of their own telephones before numbered indicators were installed.
As well, not all the booths were the same distance from the floor. Some — like Billiton Metals — were around three yards, offering great visibility, but Continental Ore were located 15 yards away at the end of a corridor. For Continental Ore it was useful that Derek Adler was more than 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 open for fresh air. 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 th birthday in and then made plans to decamp from its original home.
This was because that first LME floor dated from , 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. 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 The market itself had had a revamp — the ring and its red leather seats was still centre stage but the overall appearance was brighter, more modern and in line with the times — all the brokers had individual booths with flickering Reuters screens a nice bit of product placement, incidentally.
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. Traders still took advantage of the minute interval between the end of the first rings and 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 s — the October Tin Crisis, which took the LME completely unawares and came very close to bringing the exchange down.
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 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. 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 million pounds.
And since the LME was an uncleared market, losses had to be borne by individual firms. Jacques Lion and Ralph Kestenbaum — to name just two — were instrumental in their efforts to manage and resolve the situation. By the end of the s 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.
For the LME, the s would see another change of premises and, on a serious note, another game-changing crisis. 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 — 55 Leadenhall St came with its dedicated smoking room and a well-stocked alcohol-free canteen. Unlike Plantation House — all shiny marble and very much s brashness — the new location had a retro feel in its decor and fittings. By now, 20 years had passed since I first went down the LME floor.
For those of us on that journey, times and fashion had certainly changed. Back in , it was progressive rock, platforms and flares but in the mids it was Britpop and sharp suits. LME at plantation house in the early s. 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 who were making their mark on metals such as copper. The belligerence of a younger generation was increasingly making itself felt and, as the LME recovered from the mids and the Tin Crisis, the ring was still a well-populated place.
But it would have not 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 s 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: It was a UN-sponsored commodity pact, similar to those in coffee, cocoa, rubber and sugar.
So step forward the 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 lates 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 s recession such as historic declines and loss-making production. 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 comprised of parties with an interest in the market.
Even so, there was a limit to how long this could go on. The market scented blood. The denouement in summer was brutal — it proved impossible to support the price any more. In a series of shattering downward shifts, the copper price collapsed, falling 25 percent in one day alone. 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.
The new millennium was to see many changes in the LME as the metals world recovered from Copper Crisis. The copper price merely sneezed — it never caught a cold — and everyone started to party like it was 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. Ushered to a rooftop party, we were offered glasses of champagne and an impromptu interview with LME chairman Raj Bagri. With hindsight, and remember that valuation, it was well worth celebrating with a glass of vintage shampoo. Why the more business-like 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-coloured 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. 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 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 , 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 , pounds, which captured growing amounts of business. 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. The LME floor, while not exactly flourishing, remains. Over the noughties, activity has dwindled there, with more than 80 percent 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.