LME introduces package of measures to strengthen metals trading
Since its acquisition by Hong Kong Exchanges and Clearing (HKEX) in 2012, the London Metal Exchange (LME) has been working with its members to evolve the market and strengthen its future success for the benefit of all users.
“The LME remains the cornerstone of HKEX’s global commodity strategy. In addition to these market structure changes, we will continue to expand the LME’s presence in Asia, especially China, through enhancing connectivity with China’s commodities market, continuing to push for LME-certified warehouses in China, and launching a physical platform in Shenzhen. We are making good progress on these initiatives,” said HKEX chief executive, Charles Li.
The LME membership has, as always, provided an invaluable forum for the discussion of new initiatives and business opportunities. Following extensive discussions with its membership and broader user base, the LME today introduces a set of measures designed to optimise its market structure, strengthen its role as the global liquidity centre for metals trading, and facilitate enhanced trading opportunities for members and their clients.
“The LME has undertaken detailed discussions over the last few months with all of its members and many end user clients on ways to evolve our market. The work of the many LME Committees has helped considerably in understanding the concerns of all stakeholders. We’re pleased to be able to deliver a package of measures which reinforces our commitment to the LME’s unique prompt date structure and supports the physical underpinning of the Exchange,” said LME chief executive, Garry Jones.
The first item of the package is a new rebalanced fee rate for short-dated carries (including “Tom/next” trades) executed by members, effective 1 September 2016. Short-dated carry trades are unique to the LME’s daily date system, enabling users to roll positions from day to day, a vital component of inventory management for industrial users.
The LME has concluded that a 44% fee reduction on member short-dated carries should be implemented, bringing the cost down to match the client fee of $0.50 per side (trading and clearing inclusive). This fee is lower than the approximately $0.58 charged prior to the LME’s fee changes in 2015.
Secondly, the LME will limit the charges for member and client position transfers, which will enable users to migrate large open positions in order to manage portfolios as efficiently as possible. The average cost for such large position transfers in 2015 was approximately $30,000. Such charges will now be capped at $10,000 per transfer, representing a significant saving for members and their clients.
On the introduction of its new fee schedule in January 2015, the LME committed to review its tariff periodically, which it will continue to do, and these changes are in line with this commitment. The full updated tariff is appended to this press release.
Thirdly, LME Clear has designed and will implement an innovative margining methodology, which will reduce the initial margin payable for LME positions, while continuing to provide best-in-class risk management and market stability. This approach, which remains subject to final regulatory approval, is expected to significantly reduce initial margin, in particular for aluminium and copper, and to lower the all-in cost of LME trading for members and their customers.
“LME Clear actively engages with its membership about risk management issues and these changes are part of a continuing focus on the needs of the metals community. We are pleased to be able to provide ongoing enhancements to our margining approach without compromising our risk management standards,” said Adrian Farnham, LME Clear chief executive.
Finally, the LME has committed to review its suite of incentive programmes. Along with their structured fee schedules, these programmes are designed to generate visible liquidity across the curve, for the benefit of members and clients. The LME will work with users to ensure that the programmes are optimally structured to support the whole LME market for the benefit of all stakeholders.
The LME strongly believes that this package of measures, combined with its ongoing commitment to the physical market and to new services delivered in collaboration with its market partners will ensure the LME continues grow and thrive as the global home of metals trading.