LME Opens Consultation on Warehouse Reform Proposals

SEATTLE (LME): The London Metal Exchange (LME) is today launching a consultation process on a package of proposed measures designed to ensure that the LME warehousing network continues to provide best practice storage for the global metals industry.

The LME’s proposals have been informed by the 46 responses to its discussion paper, which focused particularly on the underlying use-case for LME warehousing. While it remains the case that current stock levels are fully able to fulfill the requirements of physical delivery on the Exchange, respondents generally agree that higher LME stock levels could achieve market-wide positive effects, including greater transparency, potential protection against technical spread tightness, and increased market vibrancy.

Given this broad view, the LME accepts that an aim of its warehousing policy should be to create an environment of sufficient stock levels in order to achieve these positive effects for the whole market. As such, the proposals put forward combine the most effective routes to deliver this aim, using both logistical and financial drivers. The proposals are grouped into three areas: logistical optimization; transparency and compliance; and rebalanced rules and a pathway to simplification.

Matthew Chamberlain, LME CEO commented: “There is general market agreement that higher LME stocks would be desirable, but two opposing views on how to achieve this. The LME understands the perspective of those who seek lower rents and enhanced logistics from LME-listed warehouses – and while we are introducing many logistical enhancements in this consultation, we believe that fundamentally reforming the LME network in an attempt to compete with highly discounted off-warrant storage may fail, and indeed result in reduced stock levels.

“On the other hand, the LME understands that many warehouse operators feel that they could bring more metal to the system if rules were relaxed – and while we wish to support our warehouses’ businesses, this must be balanced with the need for robust consumer protection. Our proposed package of measures is therefore designed to bring together the best elements of these various approaches.”

Courtesy: https://www.lme.com