At the Heart of Base Metals With LME CEO Matthew Chamberlain | IPO-VID 040 Highlights

Yeah, absolutely. And as you say, fascinating to trace and track how that's developed and why it's happened. The LME was actually pretty one message in the early 2000s with delivering an electronic trading platform, so the fact that we have the floor I don't think it's because we were slow to bring that in. And indeed over the course of the 20 years since we've had electronic trading, the LME Select platform, you've seen what you've seen on many other markets, which is that the share of electronic has increased, the share of open outcry trading has decreased, and that's similar to what we've seen on other markets. The difference on the LME is that we've never gone that final step and seen the floor close. I think the reason that happened, I'm talking pre-pandemic here because we can come onto what's happened in the pandemic, is because floors provide two services: they provide a continuous trading service but they also provide a pricing service, they help us take that snapshot. And because the LME, because of our physical roots, has that rather complex date structure, we're not a monthly futures market with September copper and October copper and November copper. We actually every day calculate the price of copper on 123 different date points from one day forward to 10 years forward.

Really interesting question because obviously we've looked at this and like all exchange operators here, we have an exchange, we have a clearinghouse, they have a lot of fixed costs associated with them, and so we're always on the lookout for can we add new revenue at low marginal cost, which goes exactly to this question: can we leverage the infrastructure to do more? It is the case that launching new physically delivered contracts is tough, and the reason for that is you end up with this sort of wheel of inertia as I describe it, that the pricing is only really relevant if the delivery is working, but delivery's only going to happen if people are trading it, and people are only going to trade it if the pricing is relevant. So it is tough to simply go out and say hey we're going to launch a new physically settled contract, and that's why the vast majority of new contract launches including on the LME now are done as financially settled contracts.

There's certainly a lot of innovation in the space because as I'm sure you know, we moved down Leadenhall Street about six years ago, and the owners of Leadenhall Street they decided they wanted to maintain the ring as an event space. And I think most recently before the pandemic it might have started again, it's been doing immersive theater, so there was an immersive War of the Worlds experience based on the Jeff Wayne musical actually. I really liked that and I wanted to go and see it but I didn't get in before the pandemic. So maybe we're not going to go quite as far as offering immersive theater in the new ring, although if anyone has any ideas for that then feel free, maybe have some amateur dramatists. But I do think that the ring can do more. And now having reached this point where I think we have a stable compromise as I say with those official prices in the ring, I fully realize that the ring dealers don't have as much business to execute on the ring as they used to. Obviously we've tried to help that through fee discounts etc, but the question is will that be enough given we now want this compromise to work? We want the ring to have a solid future. Other commodities, other ideas, we've talked about options in the past, maybe those are all things we could look at and we're very open to those discussions.

I certainly think it's meant we can be more responsive, more adaptive. The first is that we can build new functionality that's quite specific for them. The metals markets example of that is one that isn't used as much as I would like it to be, but I think is actually a really clever solution is the use of warrants as collateral. Because our members are generally sitting on a lot of metal represented by these metal warrants, and they are like depending on which way your contract is, they're either a perfect hedge or a hedge with a bit of wrong way risk, but that can be managed. They are a very good source of collateral that we can use to mobilize that liquidity and hopefully help people to trade more.

I think it's going to be very much a democratization of capital markets. I think actually what we've seen during the pandemic as people wanted to have things to do, got a lot more involved in capital markets, whether that was trading meme stocks or in some cases we saw trading commodities. I do think that democratization, that idea that individuals can participate in capital markets, is a really powerful force. So I think that idea of people getting closer to capital markets, be that through many contracts, be it through micro contracts, be it through tokenization, I think is a really powerful force. That's obviously from a self-interested perspective it's going to drive more volumes in that, but I also think it will make people feel closer to the markets, it'll make them feel that the markets are there to serve them. And particularly if we can add to that the issues that we know people care about around sustainability, if we can give them the transparency, I think that could be a very good social contract as it were in terms of how markets operate.