(March 17): Electronic trading was halted in all contracts on the London Metal Exchange (LME) for more than two hours on Monday, with dealers unable to place orders in markets ranging from aluminium to zinc as they awaited further information on the cause of the outage.
The failure came at a critical moment in the metals calendar, as the market approaches the third Wednesday of the month — the main focus of liquidity in the LME’s contracts — just as commodity prices are being rocked by the war in Iran. The disruption came as the LME encountered an issue with its primary electronic matching engine, a spokesperson for the exchange said after trading resumed.
The metal markets have been hit by several outages over recent months, with the LME facing a one-hour delay to the start of trading on Jan 30, while rival exchange operator CME Group faced a 10-hour suspension that roiled global markets in November. Traders in CME Group’s natural gas market were also hit by a two-minute disruption during an extreme bout of volatility in January.
The LME launched a new trading platform in March of last year as part of a broad technological overhaul designed partly to boost functionality for electronic traders. Unlike rival exchanges, large volumes of trades on the LME still take place via phone and electronic messages, but the LME has been seeking to bring more trading on screen in the wake of the 2022 nickel crisis.
Trading on the exchange was halted at 2.44pm local time and resumed at 5.30pm on Monday. During the outage, a spokesperson for the LME said that it was aware of an issue and was working to resolve it as soon as possible, but that it would not be resolved in time to avoid a “pricing disruption event” for LME closing prices, which are set between 4pm and 5pm London time.
The spokesperson said the electronic market had been in a “technical halt”, but that inter-office trading, where brokers trade with one another over the phone and using electronic messaging, continued to be available.
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The LME planned to restore electronic trading on a secondary server after the closing prices window, the spokesperson said. Closing prices would be calculated using the exchange’s “backup pricing waterfall approach”, he said.
That involves using the most recently traded price on the electronic platform and available information on bids and offers, according to the LME’s published methodology. Data compiled by Bloomberg showed that bids and offers were being made in the inter-office market for some of the LME’s most popular contracts during the outage.
There were no major moves in prices as trading resumed, with copper trading up 0.9% while aluminium was down 1.2%, broadly in line with levels seen prior to the halt.
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