London Metal Exchange To Launch Reuters-Managed Ticker; Data Feed Will Combine Prices From Floor, Upstairs Markets

After years of resistance on the part of old-line members, the tradition-bound London Metal Exchange is about to get its first ticker. To comply with "price transparency" rules promulgated by the U.K.'s new Securities and Investments Board, the LME has hired Reuters, Ltd. to design and operate a real-time price reporting service.

As a result, the very last ticker-free holdout among the major exchanges of world financial centers will have a price feed available to all vendors. Until now, the only vendors with primary LME prices have been Reuters and Knight-Ridder/Unicom, both of which place reporters on the trading floor to gather and relay data.

The LME deal is a first for Reuters, but probably not a last. Although the company isn't currently in the business of managing facilities for exchanges, it clearly has ambitions to be a major provider of infrastructure to the world's financial markets.

However, the short-term incentive for the LME project is desktop real estate. "We're doing it because we wanted to preserve our terminal position on the desk," says Robert Etherington, who handles commodities marketing at Reuters.

This is because the LME market is really two markets. The exchange itself doesn't trade continuously, but in periodic five-minute ring sessions. Outside the ring sessions, the market moves upstairs and becomes a telephone-based dealer market. Here is where Reuters has an advantage, because a half-dozen major metals dealers contribute their upstairs prices to the Reuter Monitor service.

With its proprietary edge in information being eroded by the new regulations, Reuters settled for keeping its terminals in front of dealers. "We decided that we would keep some measure of control over that by keeping our screens and keyboards but building the black box so that [prices] could be distributed to other people," says Etherington.

The new LME service will begin testing in March. It will have two components to reflect the two sides of the market, says David King, the exchange's director of finance. During ring sessions, LME staff on the trading floor will signal prices to data entry clerks. The data provided will include "prevailing market bid and offer prices, last trade, trading volume, and open interest," he says.

For the "upstairs" component, 14 LME dealers will enter their prices through the Monitor network. "Each member has an option to decide which information he wants to provide," says King, conceding that this laissez-faire approach will lead to some irregularities. Not all dealers will quote in all metals. Some will quote in sterling, some in dollars. Some will participate only during market hours, but at least two will be up 24 hours a day, he says.

Reuters and the LME insist that their arrangement is above board and gives Reuters no special advantage in data dissemination. "In fact, they have to subscribe to us to become vendors themselves under a separate contractual relationship," says King. "In that relationship they should be treated on the same basis as other vendors subscribing to our system." Etherington agrees: "The idea now is that everybody should have the same information."

Other vendors, however, are taking a wait-and-see attitude. "In terms of what the LME has defined as its original feed, only part of [Reuters's] market data will be available to other vendors," says Unicom product manager Paul Kennedy.

While details haven't been set, the LME does plan at least one innovation in market data pricing -- a fixed fee for unlimited use with no per-terminal charge. "We'll have to see how things evolve but certainly initially we're looking for a flat charge per annum," says King. The number being kicked around, a source says, is 50,000 pounds sterling per year.