London Metal Exchange (LME) today published a route map that sets the proposed plan to modernize its options.
It provides clearly in immediate plans to automate the closing process and providing electronic choices, both of which will help enhance liquidity and transparency, eventually expanding market participation.
The options are used by a wide range of LME market participants, including producers, consumers, intermediaries and financial participants, to help manage the risk. Currently, they are negotiating only through the market between the offices, but the launch of the new LME trading platform has laid the foundations for building an electronic options market and the functionality it requires.
LME intends to adopt a gradual approach to implementing the changes, although the final timetable and proposals will remain in account in further consultations and commitments:
Early H2 2026
- The first step will be the introduction of automated expiration for LME options, the consultation for which it will be published later this year. This will simplify and standardize the expiration process by removing the operational risk and complexity of the current manual process. It will also align the LME with global optimum practices and provide more confidence for participants.
- The previous market feedback has shown support to move from current American expiration style (which can be exercised any day until the day of expiration) to a European termination style that only allows the option to be exercised at the expiration date. LME suggests that this change is made simultaneously with automated expiration.
End of 2026
- The definitive options mentioned in a premium will be available on the screen. LME believes this will complement the existing bilateral market between the offices and align LME with other markets. Electronic options will provide greater standardization and transparency of intraperide, reducing obstacles to the entrance and making the market more attractive to a wider range of market participants.
- The launch of the screen options will be accompanied by a series of features, including mass bids and manufacturers’ protection. LME will also introduce a liquidity supply program to support display liquidity and the transparency of the intercourse prices.
2027
- LME will continue to introduce further changes after the availability of the screen options. These will include complex strategies, more sophisticated market protection, and changes in the end of the day.
Jamie Turner, Managing Director of LME and head of the negotiation, said:
“The successful introduction of the new trading platform has opened the door for the development of the electronic options market in LME and today’s document determines a clear way forward to the market.
“The market will see a steady flow of improvements starting with the automatic version and then the completion options on the screen. We know that market members and users are enthusiastic about the plans and we will work closely with them as we move to tradition.”