LME weighs complete shift to electronic, phone trading of plastics futures

Following a consultation with its members, The London Metal Exchange (LME) is considering limiting trading of its linear low-density polyethylene and polypropylene futures contracts to its electronic LME Select and telephone platforms, instead of utilizing live trading at its “Ring” in London. That move, along with other proposals and member responses, are currently being reviewed by the LME’s executive committee and will be voted on by the exchange’s board. If adopted, the contracts would be traded solely on the LME’s electronic platform, LME Select, as well as its inter-broker telephone market, in February 2010, with trading in the open outcry Ring ceasing at that time.

In a press statement, Martin Abbott, LME’s chief executive, said the move supports how the contracts have primarily traded thus far. “Trading in the LME plastics contracts has been concentrated on LME Select and the telephone markets,” Abbott said. “The decision to focus liquidity in these trading venues is a reflection of the way in which the industry trades."

LME Select is the official exchange-operated electronic-trading platform, operating between 1:00 and 19:00 GMT. Once connected, member firms’ accredited traders can execute trades electronically. In addition to screens with analysis of the market and executed trades, the system allows trading on all LME contracts, futures, options, traded average price options (TAPOs), and carries, with LME Select trades automatically sent to the matching and clearing systems operated by LME’s clearinghouse, LCH.Clearnet.

In October of last year, when the New York Mercantile Exchange launched its plastics futures contracts, it did so on its web-based electronic platform, CME ClearPort. Under that system, trading is available from 6:00 PM Sunday through 5:15 PM Friday, with a daily 45-minute break between 5:15 PM and 6:00 PM.

On July 10, the LME issued an unaudited statement for trading volumes during the first six months of 2009, noting that total lots traded rose 1.8% to 55.1 million compared with the same period last year. Daily average volumes were up 2.6% to 445,041 lots. In January, the exchange announced that 2008 marked its fourth consecutive year of record volumes, with a nearly 22% increase in year-on-year volumes with more than 113 million lots traded, compared to 93 million in 2007.

At the time, Abbott noted in a statement that the exchange was expanding business in exceptionally difficult economic times. “The LME is proving to be an attractive place to do business during the downturn, with continued growth in trading volumes despite tough market conditions.” In addition to its plastics offering, the LME provides futures and options contracts for aluminum, copper, tin, nickel, zinc, lead, aluminum alloy, and steel billet, with pending offerings for cobalt and molybdenum. [email protected]

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