The London Metal Exchange (LME) today issued a white paper outlining a package of measures designed to modernize the LME’s market structure, boost transparency and increase price competition, while protecting the unique features of its market that serve natural metals communities.
To increase accessible liquidity on the LME’s online market (LMEselect) – particularly on monthly dates where many market participants wish to have exposure – the LME will introduce industry standard block limit rules. This means that small trades involving liquidated dates (any monthly date up to one year) and for the most liquid metals (aluminum, copper, zinc, nickel and lead) should be executed on screen.
Importantly, to ensure that core market trading practices remain unaffected by the new rules, exclusion limits will not apply to daily prompt dates, so members’ provision of the personalized average for physical clients will not be affected.
These rules also support members to continue to agree small trades bilaterally with their clients, provided the liquidity is displayed on LMEselect for visibility.
To support the implementation of block rules, the LME will also introduce a liquidity provision program to encourage on-screen trading in certain liquids within the forward end of the curve. In addition, to further increase transparency, the LME will ensure that all trades (on liquidity dates) agreed in the interoffice market – regardless of their size – are entered into LME systems and published in external market data feeds.
On 19 August, the LME made its new trading platform available in the production environment for member testing, as one of the key steps ahead of launch. This system, LMEselect 10, provides a deterministic and low latency system that offers enhanced functionality for e-traders, such as the ability to enter “good to cancel” (GTC) or “persistent” order types.
Additional functionality will also be developed to further support this suite of measures, such as recalibrated tick sizes to encourage positive trading behaviors by systematic traders.
To ensure a level playing field and consistent transparency between exchange-traded and OTC markets, the LME intends to apply similar block rule requirements to LME-quoted OTC contracts that are closely aligned with monthly swap contracts (or differences between them). This will mitigate the risk of incentives from the transparent central pool of liquidity.
The measures announced in the White Paper will be subject to formal consultation, where appropriate, over the next 12 months, with the aim of implementing the package in the second half of 2025.