Martin Pluves explains some of the technological challenges presented by LME plastics contracts
Readers of the Ringsider will already be familiar with the LME’s plans to launch plastics contracts in May 2005. Previous editions have discussed the synergies between the non-ferrous metals and plastics markets and we all see everyday evidence of the two materials used in conjunction in modern manufacturing and construction.
However, little has been said up until this point about the technological challenges involved in launching the new contracts. With the advent of electronic trading, via LME Select, the task of launching a new contract across several trading platforms and involving multiple third parties becomes far more complex.
Given the LME has launched other new contracts in recent history; is plastics really such a big deal? Putting the clear market benefits to one side, there are key aspects of plastics trading that are very different to the previous new metals and index contracts.
Launching plastics futures at the LME is actually 30-plus IT development projects, performed by multiple development teams 
This is the first time that such a large-scale change has been implemented in the LME IT systems and operational procedures. The physical delivery of plastics is very different to metals with the introduction of a notification and allocation process and also a commodity shelf life. This is the first time an LME contract size has included decimals which has implications for members’ systems which have always worked on the convention of whole number or integer contract sizes. The introduction of a new style of warrant (with the addition of an expiry date) and associated processes is also a first for the LME and impacts our technology in varying ways.
Integrating systems
Putting these changes aside there is still the job of adding the new commodity and contracts to existing systems within the Exchange and LCH.Clearnet. These comprise front office trading, trade capture, matching, clearing, settlement, compliance, market data transparency, ring infrastructure and back-office reconciliation and reporting systems. Not to mention the changes required by LME members and their software vendors to enable trading and clearing of the new contracts.
The plastics launch involves a programme of change affecting some twenty-five plus software systems and over thirty systems interfaces within the LME and LCH.Clearnet. This of course is only half the story with the LME member development and integration projects being just as critical to a successful launch.
There are fourteen key touch-points between the LME members, the Exchange and LCH.Clearnet systems (though this doesn’t include other interfaces between the members and LCH.Clearnet that are external to the LME business). Launching plastics requires that changes of varying degrees be made to these interfaces.
There is an array of different member interfaces comprising:
- ring infrastructure – wallboards, symbol display panels and trading period indicator bell
- end-user screens – LME Select trading screens, Reuters indicative price entry screens, LME Matching and Clearing System (MCS) trade entry and clearing screens and reports, SWORD warrant management screens (PC SWORD) and other back office system screens for compliance, position reporting, reconciliation and trade registration and matching
- file transfer interfaces – data files published on LME.COM, SWORD warrant report files, large position and open interest compliance submissions
- systems protocol interfaces – protocol interface to the LME Select trading system and external interface to LME MCS, for example.
Member briefings
The LME has scheduled a programme of briefings to members to help them analyse the impact plastics trading will have on their systems, and working closely with them to identify any system changes that are required before plastics trading commences.
The responsibility for specifying and implementing the interface changes rests with a number of strategic LME technology partners including Syntegra, Cinnober, Reuters, LME market data vendors, dna and AVT, not to mention the internal IT departments of the LME, LCH.Clearnet, LME members and their systems suppliers. The timescales for finalising specification and delivering upgraded systems solutions will of course vary by interface, system and supplier. The complexity here is obvious. With so many variables involved in the launch, robust project management is critical, along with the highest attention to detail in terms of infrastructure testing and member communication.
So how is the LME ensuring delivery of the project on time? There are two aspects central to our approach on this project:
- High degrees of project management and control
- Accurate and timely communication with LME members
Under the project microscope
The LME has established a dedicated project office to manage the levels of control required by a project of this nature and size. It is essential that activities are carefully planned and agreed, and that progress can be efficiently tracked against the various work streams. The work streams comprise business, legal and compliance, marketing and communications as well as IT. Understanding the influence of any change against the plan and how it impacts other areas of the project at a detailed level is essential. The key: being adaptive to project change. This allows us to react to changes effectively and this capability maximises our ability to maintain focus on meeting the project milestones regardless of what the ‘real-world’ throws at us.
Essential information
Ensuring the LME and LCH.Clearnet IT work streams are successful is a critical part of our work but is only part of the battle. Ensuring members gain access to clear, accurate and up to date information is essential to allow them to plan and implement their own systems and business operations change programmes. Hard fought experience has shown true value of good communication to LME members. The Exchange has also established an extranet website made available to members as a reference site for key technical communications and documentation. This is in addition to the ongoing work of the LME Helpdesk staff in facilitating resolution of member queries.
The combination of best practice project management and a transparent communications strategy will ensure that the LME is on course for a successful launch of plastics futures contract in 2005.
