London 28/01/2015 - (Updating with comment from the LME regarding cost of move)
Plans by the LME to move its headquarters to larger premises around a year from now include dedicated space for the open-outcry ring - the last of its kind in Europe - but the timing of the announcement has raised the hackles of some members.
The LME has agreed head of terms for a lease of 10 Finsbury Square in London and, subject to concluding a lease agreement, expects to relocate by the first quarter of 2016, it said on Monday. The exchange will occupy three floors at the new location, a source close to the matter told FastMarkets.
"These new premises will accommodate both the ring and the enhancements the LME has committed to in respect of investing in ring-based technology," the exchange said in a press release.
"It does seem like a fairly short time to do it but as long as there is a floor, then it is the same as the other moves they made," a floor trader said.
The LME stressed its intention to maintain the ring, the lifespan of which is continuously called into question as markets become increasingly electronic.
"I take comfort from the fact they did not hedge anything to do with the ring," a Category One exchange member said. "They were pretty unequivocal about that - and, actually, this would have been a good opportunity to say: 'no more ring'. Now it is down to the ring dealers to prove their worth."
Still, there are likely to be some changes to the design of the ring. For example, it may not include a viewing gallery, a feature that has proved popular at the exchange's current location.
The layout is of particular interest to Cat 1 members who will want to ensure there is still privacy and security to trade. Maintaining an unfettered line of sight is also of importance to those trading and communicating in the ring.
"I would hope that the floor and all its trappings is the same. It is a big 'plus' having a market and a gallery to bring customers to," a veteran trader said.
Still, not all participants welcomed the news - some called the timing of the news "insensitive", coming quickly after a fee increase that some firms are struggling to digest.
The LME changed its fee structure as of January 1, introducing a new all-in rate that, in some instances, led to increases of 97 percent.
"On the surface of things [the proposed move] is positive but you can't help but feel that they are spending the profits from the fee hike," a second LME floor trader said.
"It's completely unnecessary," another market participant said. "They have just raised the fees and all the members are rubbing their faces in their hands, so this is not the best message to send."
As well, the ring at the Leadenhall Street premises was only recently refurbished - something paid for by LME members albeit agreed long before the fee increase was introduced.
Still, relocation is a cheaper alternative to refurbishing the LME's current headquarters and the new premises will ultimately prove more convenient for its members, the exchange said.
"The LME will be saving money by moving to the new location compared with consolidating in its principal premises," a spokeswoman told FastMarkets.
“Our assessment shows that, in aggregate, the new location at 10 Finsbury Square will actually be more convenient for our existing Ring dealing members, geographically. We will do everything we can to ensure the transition is as smooth as possible," she added.
Since the early-2000s, the LME has been the sole exchange with an open-outcry trading floor in Europe. Terminal markets for agriculturals, soft commodities, energy products, financial futures and shipping indexes have all closed in London and migrated to electronic platforms.
In December last year, the exchange said it was considering a move from its current location following an increase in staff numbers.
Before Hong Kong Exchanges and Clearing (HKEx) acquired the exchange, the LME employed fewer than 100. This figure has since jumped to some 300 employees due to the addition of LME Clear and the bringing of its technology department in house.
"Commercially, it makes sense to relocate to house a lot more people under the same roof," the Cat 1 member said.
"I suppose it was inevitable if the lease was up for renewal - the LME has become very large [since starting work on LME Clear] and these premises are probably not suitable anymore," a third floor trader said.
The LME has had three homes in its 137-year history - all in London's financial district. Its original location in 1882 was in purpose-built premises in Whittington Avenue, where it remained until September 1980.
It then moved to Plantation House - half a mile away - in Fenchurch Street but outgrew that location within a decade. The move to its present headquarters in Leadenhall Street was made in 1994. It has a long lease on those premises, believed to beyond 2020, but with five-year break clauses.
(Additional reporting by Martin Hayes, editing by Mark Shaw)