London Metal Exchange trading market faces renewed threat as Societe Generale leaves

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Société Générale has pulled out of the historic London Metal Exchange, raising questions about the long-term viability of Europe’s largest open pit.

The French bank’s departure on Friday brought the number of members of the Ring, which has been open since 1877, to seven, just one more than the minimum required to maintain it. SocGen was the last European bank to be an active member of the historic floor.

The move has renewed speculation among senior London metals executives about the future of the Ring, which is known for its distinctive red sofas and trade in copper, aluminium, nickel, lead and zinc. It was only saved from closure in 2021, when a backlash from angry traders forced the LME to scrap plans to go fully electronic after the pandemic.

Traders using Ring have long argued that it can set “official” prices, used by producers and consumers as a reference price for delivery of the physical metal in commodity contracts.

The LME’s electronic market sets the daily closing price and is used by banks, hedge funds and market makers to calculate the value of their portfolios.

“Because we’re still Ring dealers, it gives us the ability to do pricing,” said Marc Bailey, chief executive of member Sucden Financial.

“The legitimacy of the floor is really based on physical customers wanting to have a price they can rely on that is not affected by electronic trading and algorithms,” he added.

Daily trading in Ring is unlikely to change with SocGen’s exit, as traders estimate the bank only handled around 6% of its volumes.

After the 2021 postponement, the LME said it would consider closing the Ring if the number of members falls below six or if the trading volume of those members falls below 75% of the previous year. The LME said on Friday that none of these conditions had been met following SocGen’s withdrawal.

SocGen declined to comment. The Bank will retain its membership of the LME’s electronic trading market and its clearing house.

“I don’t think this changes anything structurally, apart from the optics,” said Christian Lusted, head of sales at Marex, another member of the Ring. “It’s an important business for us and it will continue to be.”

The other remaining members are brokers Amalgamated Metal Trading, Sigma Broking, StoneX, GF Financial Markets and CCBI Global Markets.

The LME, owned by Hong Kong’s HKEX, has weathered a number of storms in recent years, including a nickel market meltdown in March 2022.