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Extract from "Tarnished Copper"


Prologue March 1988

The group of graduate business students were welcomed into the London Metal Exchange boardroom by one of the Exchange's marketing staff; he was a young man, well-dressed in a stylish German suit and Italian silk tie, but also with a rather pompous air to him. 

"I'm pleased to see you all here;" he said. "Welcome to the LME. I'm glad you took advantage of the opportunity to come and see our market, because sometimes we feel we're a bit of a cinderella amongst London's Exchanges, one that most people are not really aware of." He leant forward, to emphasize his point. "And yet, we're one of the City of London's success stories. We are the premier global price setting mechanism for primary base metals, that is, copper, aluminium, tin, lead, zinc and nickel. These are all essential products for an industrial society, and they are mined and smelted all over the world. However, when it comes to establishing the price for them, there is no competitor for the LME. Later on this morning, we're going to go and look at the open outcry market, where the dealers make their trades. You'll see how they scream and shout at each other in what we call the Ring. They trade each metal for a five minute ring in turn, four times a day. The final bid and offer price in the second ring for each metal in the morning session then becomes what we call the day's official price." He paused for effect, and looked appraisingly round at the fifteen or so students. "This is the price which is used by producers and consumers worldwide to make their purchases and sales of metal." He paused again, to look meaningfully at the faces in front of him, "That gives us a unique position as the only Exchange in the United Kingdom with such a global reach."

One of the students leant to whisper in the ear of the attractive girl next to him, in a Michael Caine voice, "And not a lot of people know that." She tried to hide her giggles, earning a censorious look from the LME spokesman, who continued, "But we'll see that later. First, we're going to go next door, where we've set up a question and answer session for you about futures and options pricing. So if you'd just like to follow me...", and he led the group of City University Business School finance majors out of the panelled boardroom and into a smaller conference room, set up with chairs, tables and an overhead projector.

Meanwhile, down at the other end of Fenchurch Street from the LME, one of the dealers the spokesman referred to was having a rough morning. Jamie Edwards was accepted by his peers in the market as one of the most talented dealers in the business, but he was getting a serious dressing down from his boss. 

"Jamie," said Terry Prichard, managing director of Myerson Brothers, "your performance is not up to standard. You've been losing money too often, and you know why. I don't want to do this, but my co-directors have left me with no alternative." He tugged to loosen his already slackly tied tie. "This is an official warning. Unless you pull yourself together, you're going to leave Myerson's." He held up his hand, as Edwards started to object. "For God's sake, Jamie, you know what the problem is, and you can't expect me to go on making excuses for you if you won't help yourself. It's the drugs that do it. Just get yourself under control."

Edwards left the room. He knew Prichard was right - at least, right now he did. But when he craved the cocaine, his whole perspective was different. He sat down at his position on the dealing desk, and mechanically worked through the morning, making prices for Myerson's customers to trade.

Back at the LME, one of the students put up his hand. The LME official nodded for him to ask his question. "You've explained about pricing deals, but it seems to me that it only works during the open outcry market, down on the Exchange floor. What happens for the rest of the day - like now, for instance? How does it work if I want to buy some copper now?"
"OK," said the guide, "that's a good question. The way it works is that the dealers will be in their offices, and they trade with their customers and with each other over the telephone - just like they do in the foreign exchange market. With a Japanese, for example, you've got a big time zone difference to accommodate, so if he wants to buy or sell copper, he can call his broker/dealer, and ask him for a price. If he then trades, the broker has the opportunity to ask for a market from one of his peers - so in a way, they are all working together, even though they have different clients. Although some of the clients will trade with more than one broker." He paused, and then added, "That's what's going on at the moment, in the brokers' offices. Then, late morning, they will come down to the Exchange, and the day's official trading will begin.

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