What’s the fastest way to get regular people upset about some mundane commodity pricing/warehousing semi-scandal. Threaten their Beer! Financial media have been non-stop today discussing Chicago Based Miller-Coors’ frustrations over the London Metal Exchange’s lack of regulations when it comes to banks involvement and ownership of aluminum stockpiles, claiming the banks are artificially raising the price of the beer can making metal (btw – even us Chicagoans still aren’t used to Milwaukee defining Miller and Colorado defining Coors being HQ’d in Chicago).
“In the past three years, a mountain of aluminium and other metals has accumulated in the global warehouses that are part of the LME network, clogging the trading system and causing lengthy queues – up to a year – as consumers and dealers of the metal seek to get their hands on it.
The queues have caused the price premium on some metals, such as aluminium and zinc, to surge, prompting accusations that banks and traders that own storage facilities are artificially inflating prices and distorting supplies.”
For more on the banks nifty trick of trucking aluminum and other metals around the country, see here. But the better LME story lately in our opinion is the more humorous Wall Street Journal piece on the LME detailing how quirky and bizarre of a place the LME is.
First off, LME’s colorful nicknames.
“Monkey, Pockets, Pee-wee, Dipper, Slippers, Flea, Bug, Tick, Zzzz, Scotch Egg, Flame, Stay Puft, Oddball, Womble, Ruggy, Shrek, Tree and Twig. These are just some of the nicknames you might hear shouted across the LME floor on any given day.”
“ Monkey comes from the saying “Speak to the organ grinder not the monkey”. Apparently when the trader in question was a clerk he was not that knowledgeable, so the dealer he worked for used to call him Monkey in reference to this saying.”
“Scotch Egg is in reference to the trader’s round physique and ginger hair that looks like breadcrumbs, according to another LME dealer.”
This might go back to that general claim that Americans don’t understand British humor (do they get American humor?), but there’s more… If you can get past the British jargon, then you have to learn the rules, like getting fined 500 pounds (or $768) for “conduct of an unprofessional nature.” Believe it or not that includes chewing gum… and not dressing your best. The CME has similar rules, yet from our experience they are less stringent about enforcing them.
The LME is rich with history, dating back to 1571 when it was called the Royal Exchange of London. Lots of history comes with a lot of rules like standing in a circle when trading, only being open from 11.40am to 5pm, and traders have to be attached to a red sofa when trading.
“When traders are in the ring they must stay in contact with the red dealer sofa in the center of the room, where they sit to trade. While the rules have been relaxed to allow for traders to stand rather than sit, they must at least keep their leg touching the sofa or the trade will not be considered valid.”
Photo Courtesy: WSJ
By far the most unique aspect of the LME is the fact that they still primarily trade in the pits, compared to the CME and ICE which are mostly electronic based. Well, as they say, to each their own.