BANKING ON THE LME’S FUTURE?


Last month’s surprise announcement that SocGen would close its commodity OTC and market making businesses brings the curtain down on a metals business that started almost 30 years ago. SocGen will retain Category 1 LME Floor membership through its Newedge brokerage, but the withdrawal from Category 2 activities raises questions for customers, the LME, regulators and other market participants.


According to news coverage, the decision   and a desire to increase capital reserve ratios.  weightings than many other asset classes, and the cuts hit hardest on a business seen as non-core by 


      industrial roots, and nine remaining Category 1 Ring Dealer members, numbers are well down from the    business. There are several trading houses and funds  liquidity, but the number of LME Category 1 and 2 members who facilitate customer business is worryingly low.


 pressures over the past 20 years, with BIS Capital Adequacy increasing the costs of facilitating far forward business since the late 1990s. The    


The sale of the LME didn’t help either, with the new owners increasing trading fees and margin rates at LME Clear, perhaps trying to recoup 


The current situation is in sharp contrast to the LME of the 1990s, when     heavy blow to the LME, with Ring Dealer numbers falling to 20 by the start of the 1990s.


 attract new types of business, further helped by a number of external factors including the boom in investor business, low interest rates and surplus liquidity.


20 | ADMISI - The Ghost In The Machine | May/June 2019


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