Views: 0 Author: Site Editor Publish Time: 2024-09-04 Origin: Site
·The LME's drive to modernise its market structure by increasing transparency and improving the competitiveness of market quotations will benefit all market participants
·Protecting the date structure of daily delivery and the current model of spot settlement prices, which are essential for trading in the spot market
·Supporting liquidity in electronic trading by introducing industry-accepted block trading rules alongside a liquidity provider scheme
·Introduction of cross order rules and improved market data transparency for inter-office trading
·OTC lookalike rules to ensure a level playing field with on-market trading
The London Metal Exchange (LME) published a White Paper on 4 September 2024 setting out a series of measures aimed at modernising the LME's market structure, improving transparency and enhancing price liquidity, while protecting the unique function of its markets to serve the real economy.
Matthew Chamberlain, Chief Executive of the LME, said: ‘Our announcement today of a series of measures to enhance liquidity marks the next stage in the reform of our market structure, which is vital to the long-term health of the LME market. The daily delivery structure is one of our greatest assets, helping to ensure that our global reference prices reflect the reality of supply and demand for each metal. Led by financial regulatory policy, these future-focused measures will increase participation in our markets and make our prices as representative and accessible as possible, whilst remaining true to the real economy.’
In order to increase the transparency of trading data and trading liquidity on the LMEselect platform - particularly on monthly trading days when many market participants wish to participate - the LME will introduce industry-recognised rules such as large lot limits. rules. This means that small trades in monthly contracts for flagship metal categories (aluminium, copper, zinc, nickel and lead) for up to the next 12 months must be executed electronically. Importantly, to ensure that major physical market trades are not affected by the new rules, the large lot limits do not apply to trades that are not on the expiry date of the monthly contract. Customised averaging trades offered by members to industrial clients will therefore also not be affected.
Whilst ensuring that liquidity is visible on LMEselect, the large lot limit does not restrict members from continuing to enter into bilateral small trade agreements with their clients.
Jamie Turner, Head of Trading and Chief Operating Officer at the LME, commented: ‘The introduction of the large lot limit rule is designed to improve price transparency, which will attract more participants and in turn improve liquidity. This change will enable traders to maximise their access to liquidity on central venues, either directly or through members and trading platforms. Whilst the large lot limit rule is the norm in most peer markets, we recognise the impact this will have on members' business models and we will be working closely with them over the next 12 months through a series of working groups to guide the implementation details. ’
To support the implementation of the large lot limit rules, the LME will also introduce a liquidity provider scheme to encourage liquidity in near-month contracts on the electronic market. In addition, to further improve transparency, the LME will ensure that all trades (monthly contracts) agreed in the inter-office market - irrespective of their size - are registered on the LME's systems and included in market data feeds.
On 19 August, the LME made the new trading platform available in the production environment for members to test, one of the key steps in the run-up to the launch of the new system. The new system, LMEselect 10, has predictable low latency and provides electronic traders with improved functionality such as the new 'Good Till Cancelled' (GTC) or 'Perpetual' order types. To further support this range of measures, other features will be introduced, such as recalibrating the size of price movements to encourage active trading behaviour by system traders.
To ensure a level playing field and consistent transparency between exchange-traded and OTC OTC markets, the LME is considering implementing similar large lot size requirements for OTC contracts that reference LME prices and are closely correlated to monthly exchange contracts (or spreads between these contracts), reducing the risk of trading away from centralised liquidity pools.
The measures announced in the White Paper will be subject to formal consultation as appropriate over the next 12 months, with the aim of implementing a package of measures in the second half of 2025.
All references are to the English version of Circular 24 240 and related press releases.