HFT Descends On London Metal Exchange
High-frequency traders are making a push into one of the last bastion’s of traditional trading, the London Metal Exchange (LME), which maintains Europe’s last open outcry trading pit.
Fixnetix, the UK-based co-location service provider, has announced that it will connect to the LME, the world’s leading base metal market, to offer its hedge funds and proprietary trading clients low-latency access to the 135-year-old exchange. The LME will be the 85th market to which Fixnetix offers connectivity to as part of its offering of infrastructure for market data, trading and risk control.
“Fixnetix customers demand multi-asset class market access from any Fixnetix based data centre,” said Hugh Hughes, chief executive of Fixnetix. “We are pleased to offer low latency market data from the London Metals Exchange as they begin to bridge floor trading with the benefits of the worldwide electronic trading community.”
High-frequency trading is said to account for roughly 5% of all trades on the LME, but market participants believe that figure could rise to as much as 20% in the next few years. HFT volumes now make up as much as 60% of all equities trades.
“HFT isn’t a huge part of the LME’s market at the moment, it’s not like it is in other commodities exchanges where there’s a lot of HFT going on,” a source close to the matter told Markets Media. “On the whole, in general, though it is becoming easier to do it on the LME.”
For example, on the Comex, a subdivision of the New York Mercantile Exchange, high-frequency traders are more active. HFT was blamed for a 30% drop in the price of silver on the commodities exchange in May last year.
“We are pleased to welcome on board a significant player in the market data field, who we are sure will benefit the wider market by adding LME data to their mix,” said Michael Warren, chief technology officer of the LME. “The platform and location upgrades we have made over the last year or so, which have significantly reduced latency and made connectivity more straightforward are now making the LME feed more attractive to firms such as Fixnetix, justifying our investment decisions.”
Earlier this year, the LME went live with a new version of its electronic trading platform LMEselect. Volumes at the LME have surged in recent years and in 2011 trading increased by 21.9% over the previous year, which itself was a record year. Many of these trades were conducted electronically.
“Our position as the premier base metal market in the world requires us to stay at the forefront of technology,” said Warren. “In addition, a constantly changing marketplace means being able to deliver new order types and face up to the demands of high-frequency trading.”
Meanwhile, it was reported earlier this week that Hong Kong Exchanges and Clearing, Hong Kong’s stock market operator, was one of several parties interested in buying the LME as it looks to expand into the commodities sector to capitalize on Chinese demand.
Analysts estimate that the LME could be worth $1bn, after the LME revealed last September that at least 10 parties were looking at purchasing the 135-year-old exchange.
The LME primarily offers futures and options contracts for copper, aluminium, zinc, lead, nickel and tin. Trades are worth, on average, $61 billion a day or $15.4 trillion annually.
CEDX opened on 6 September, offering contracts on Cboe Europe single country and pan-European indices.
The MOU covers certain security-based swap dealers and participants.
Equity underwriting on European exchanges rose 70% in the first half.
The analysis is based on transactions publicly reported by 30 European APAs and venues.
A similar service is available on the BIDS platform in the US equity market.