The London Metal Exchange (LME) has announced a range of measures aimed at boosting electronic trading on its LMEselect platform while reducing ring trading activity in its three-month contracts for key industrial metals that serve as global benchmark references. The exchange said the measures, outlined in a white paper released today, aim to increase liquidity and enhance price transparency, while preserving its unique physical metal trading practices.
The LME's white paper mainly sets out a liquidity provider programme, the introduction of block trade rules, increased transparency for inter-office trades and over-the-counter (OTC) lookalike trades as part of its reforms. The block trade rules will require smaller trades involving each monthly date out to one year for metals such as aluminium, copper, zinc, nickel and lead to be executed electronically via LMEselect. But it said its daily prompt date structure, essential for physical market trading, will remain unaffected by this change.
To further support the block rules, the LME's new liquidity provider programme will incentivise the trading of "certain liquid instruments" at the front end of the curve, it said. And the LME added that it will require all trades, regardless of size, to be booked into the LME system and published on external market data feeds, a move designed to increase transparency by bringing even inter-office trades into the electronic fold.
The rules introduced for exchange-traded activity will also apply to OTC trades, the LME said. It will introduce similar block rules for OTC contracts that reference LME prices, creating a transparent central liquidity pool for all activity.
The exchange will work with members to assess the impact of proposed changes to their business models, with working groups established over the next 12 months to discuss the details of the implementation.
The proposed measures will undergo a formal consultation process and a regulatory approval process, with the LME aiming to implement the full package of reforms in the second half of 2025. Testing for the new trading system that incorporates the reforms has already started, the bourse said.
Open-outcry trading in the exchange's ring is used to set official prices used by both the physical and speculative markets, with LME select used for closing prices.
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