JPMorgan to stop open outcry on London Metal Exchange

U.S. bank JPMorgan Chase is quitting open outcry trading on the London Metal Exchange after cutting back on its commodity business, which will reduce the number of financial institutions trading in the LME "ring" to nine.

The move, announced by the exchange on Monday, raises questions about the future of open outcry trading on the LME after most other markets have shifted to all-electronic formats.

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The LME is the only exchange in Europe continuing the open outcry practice. During the rings on the LME trading floor, a circle of padded red-leather seats, traders use arcane hand signals during five-minute bursts of intense trading in copper, aluminium, zinc, lead, nickel and zinc.

The LME, the world's oldest and largest market for industrial metals trading, affirmed its commitment to the open outcry rings in June last year, saying it would invest 1 million pounds in technology. At the time, it hoped to attract more ring-dealing members.

But on Monday the LME said in a members' notice that JP Morgan Securities would change as of Tuesday from Category 1 to Category 2 membership, which allows electronic and telephone trading, but not ring dealing.

The LME did not give a reason for the change. JP Morgan was not immediately available for comment.

Last year, the U.S. bank sold its physical commodities division to trader Mercuria because of rising regulatory and political pressures.

The LME had launched a review of whether to keep the ring following its takeover by Hong Kong Exchanges and Clearing in December 2012.

Much of the LME's trading volume has moved to its electronic platform, LME Select, but many participants regard open outcry trading as useful for setting benchmark prices and for trading the LME's complex date structure.

The number of firms that trade in the LME ring have declined from a peak of about 30 during the late 1980s.

The ring has its roots in the early 19th century when the Royal Exchange, the world's first commodities market, became so crowded, metal merchants gathered at the Jerusalem coffee house on Cornhill in the City to conduct business.