London 05/08/2016 - The temporary relocation of London Metal Exchange (LME) open-outcry trading from its purpose-built London premises to its disaster recovery (DR) site outside the capital at Chelmsford, which has lasted longer than hoped, is increasingly affecting floor business levels, several traders said.
A structural fault in the London building that has housed the LME since the start of 2016 has forced the exchange to move all of its functions to sites elsewhere or staff to work from home since July 18.
The open-outcry floor, the last of its kind in Europe, was initially only expected to be closed for around two days. Instead, the reopening of the London building has been delayed while work is carried out - it may not be until the middle of this month that the floor will re-open.
"I know it is the summer so you would expect it to be slow but it just feels to me that it is slower, which is down to being here [in Chelmsford]," a veteran trader said.
For several years the LME has maintained a replica trading floor, with some associated communications and screens, at the DR site - this is a regulatory requirement- where trading days are held twice a year.
But the extended period of trading - the nine Category One ring dealer members (RDMs) are there - has seen the drawbacks of the technology there compared to London hit operations.
"[Working at the] DR site is not the LME's fault but business is being impacted... From an IT perspective I think there are many rumblings about connectivity at Chelmsford," another senior source at a RDM said.
Others highlighted communications as a concern. The wifi is slower while the limited number of land-line phones curtails the ability for many to do commentaries to customers, which restricts the number of people companies can operate with.
"This must be hitting daily P&L - we reckon that we are 30 percent down on [floor turnover] since we have been here and I reckon that may well be much the same for others," another trader at a leading RDM said.
What tends to happen is that the office will get the business or the customer goes elsewhere when he cannot immediately get the broker on the floor because the Chelmsford phone is engaged and as many clients trade through multiple brokers, he added. As well, the limited screen allocation means that a trader cannot provide an instant quote on Select if someone else is using it - again, the business goes elsewhere.
"Coming here twice a year to test is a novelty but it is getting a real problem now. I know it is absolutely nothing to do with the LME and not their fault. Nevertheless, on top of the higher [fees], it would be a nice gesture if they rebated something as compensation to the RDMs," a senior trader of many years experience said.
Enforced staffing changes may become permanent on the return to London, others said. One firm has kept traders on desks in the London office rather than manning the floor so they are always available to trade, are seeing more enquiries and are likely to be getting more business now.
"Previously, you would take a call, the customer would ask for a market, but the trader with the book might be in the ring, around the back or in the toilet. Now he isn't - and that might change thinking when we get back," one said.
It is too early to say whether this will change thinking about whether to remain an RDM but it has done nothing to assure firms that a business model based on having a floor presence can be sustained over the longer term.
"I'm not sure how to quantify the loss of business but these ongoing issues are weighing heavily. The [LME] will definitely have to get the landlord to pay up," another said.
(Additional reporting by Kathleen Retourne, editing by Mark Shaw)