MA Global Management student visit to London Metal Exchange and
Bank of England
London, 29th November 2007
London Metal Exchange
London Metal Exchange is the world’s premier non-ferrous metals
market. It offers a transparent place for trading, in which buyers
and sellers are conducting business in a fair manner.
Established for over 130 years and located in the heart of
The City of London, the London Metal Exchange is the world’s
premier non-ferrous metals market. It offers futures and options
contracts for aluminium, copper, nickel, tin, zinc and lead plus
two regional aluminium alloy contracts. In 2005 the Exchange
launched the world’s first futures contracts for plastics; for
polypropylene and linear low density polyethylene, with the
introduction of regional plastics contracts in 2007. In addition,
it offers LME-minis, which are smaller-sized contracts for copper,
aluminium and zinc plus an index contract (LMEX).
The Exchange provides a transparent forum for all trading
activity and as a result helps to "discover" what the price of
material will be months and years ahead. This helps the physical
industry to plan forward in a world subject to often severe and
rapid price movements. Such is the liquidity at the Exchange that
the prices ‘discovered’ at the LME are recognised and relied upon
by industry throughout the world.
The LME is a
highly liquid market and in 2006 achieved volumes of 87 million
lots, equivalent to $8,100 billion annually and between $35-45
billion on an average business day. Despite its London location the
LME is a global market with an international membership and with
more than 95% of its business coming from overseas.
Members Only
Being a principal-to-principal market, the only organisations
able to trade are its member firms, of which there are various
categories. LME
members provide the physical industry with access to the market, to
the risk management tools and to the delivery mechanism. Trading
takes place across three trading platforms: through open-outcry
trading in the ‘Ring’, through an inter-office telephone market and
through LME Select, the Exchange’s electronic trading platform.
We were showed into a glass room located above the trading room, in
which we were able to witness the trading in progress.
Our guide enthusiastically explained to us the process, rules
and gestures that each trader was acting. The following points we
learned:
- Each metal trade lasts exactly five minutes
- 11 “ring dealers”, sitting on red couches, all business must be
passed through a ring dealing member. The golden rule was that
they had to be touching the couch at all times during the trade
otherwise a fine was imposed upon them.
- Behind them were between 3-4 clerks who would relay messages
via hand gestures to the ring leaders and those who were on the
phones(5/6- now that’s what we call multi-tasking) taking orders
from clients.
The Bank Of England
We then continued our visit into the Bank of England Museum. We
were given an overview of The Bank of England activities. We
learned that the Bank of England is the central bank of the
Unite
d
Kingdom. Sometimes known as the "Old Lady" of Threadneedle
Street!
The Bank's roles and functions have evolved and changed over its
three-hundred year history. Since its foundation, it has been the
Government's banker and, since the late 18th century, it has been
banker to the banking system more generally - the bankers' bank. As
well as providing banking services to its customers, the Bank of
England manages the UK's foreign exchange and gold reserves.
Having been in existence for more than 300 years the Bank of
England has, unsurprisingly, accumulated a considerable number of
items associated with its history. These items are grouped into
'Collections'. Some of them, such as banknotes and furniture,
represent the survival of tools used in the everyday working of the
Bank whilst others, such as the cartoons, have been acquired over
the years either by purchase or presentation. Items from the Bank's
collections are displayed in its Museum where they are used to
illustrate the history of the institution and its role today at the
centre of the UK economy.
Our group had a great learning experience from the visits
organised by the MA Global Programme team.
Report contributed by Sarah Darwiche and Awais Ahmed
– MA Global Management students