Floor v.s. electronic at LME

An old-fashioned argument is ongoing at the LME. Reuters is reporting about the conflict, the LME intends to attract new liquidity in the electronic market. To do this, standard monthly dates are adopted. The effort is part of LME's liquidity roadmap to grow their business, LME wants to cater to a different audience than the one that uses the floor.

Floor brokers are objecting to this change claiming the audience that want to use the electronic markets already do so. They argue that the standardized dates will lead to fewer trades and less liquidity, which in turn will diminish the quality of the reference price.

This seems to be the traditional argument where the floor wants to protect it's current business model in a changing world. The fear of hurting the reference price in a commodities market is not unrealistic.  Besides highlighting fears, brokers could try to lower the broker fees for floor trading. An additional advantage to this is that it addresses the risk of more date-structure flow to go over the counter.  

With their "liquidity roadmap" the LME is obviously trying to attract new untapped potential to fuel growth. Who will turn out to be right greatly depends on the actual size of this untapped potential.  Electronic traders looking for new markets to enter are likely to find an open door at the LME. This should increase competition and can lower brokerage fees.

Around the worlds there are calls, including the ones from regulators, for more standardization in trading. This means today's model is unlikely to be viable in the mid-to-long run. If the floor community argues that standardized electronic trading does not fit their market, an alternative plan should be put forward. A successful plan addresses transparency concerns and provides an accessible market with competitive pricing.