The London Metal Exchange (LME) is planning measures to boost electronic trading in its monthly contracts, a move that may reduce activity in its unique three-month rolling contracts that serve as a benchmark for the global metals industry.

The moves, which will include a requirement for dealers to place small trades in monthly contracts electronically, may lead to those contracts becoming the “key liquidity point” for users, just like they are on rival exchanges, the LME said in a notice to members on Wednesday.

The measures may also encourage a shift away from trading in the LME’s phone-based market and also boost trading on its electronic trading platform, it said.

Unlike exchanges such as CME Group and the Shanghai Futures Exchange, a large volume of LME trading takes place via phone and email in the so-called inter-office market. Screen-based trading accounted for 48% of overall volumes in 2023, the LME said.  

For years, the exchange has been exploring measures to boost liquidity in its electronic contracts, spurred on by algorithmic market makers who dominate trading on other exchanges.

But it has faced criticism from some core users, who say that may jeopardise trading in its unique suite of daily forward contracts, which have underpinned the LME’s status as the global pricing benchmark since its founding in the 19th century.

  - Bloomberg