London 03/05/2016 - The LME has amended its accountability requirements to keep the onus of accountability reporting on the exchange and not its members, it said.
The exchange will move forward with implementing accountability levels for some contracts as of July 4, it said on Friday. These apply to any member and/or client trading LME contracts and will apply to positions held at the end of day.
According to the initial documentation, the onus was on the member who held the position - or whose clients held the position - to report to the LME the rationale behind holding that position.
"Members must have in place appropriate procedures to identify positions that are in excess of the accountability levels, such that they are able to meet the reporting requirement," it had previously said.
But this proposal placed an "unnecessary burden" on LME members, respondents had said.
"The client may hold additional or offsetting positions on other LME members. It would require the member to investigate each position without the full information, requiring substantial resources on a technical and personnel level," a respondent said, adding that "only the LME has full visibility over all positions of clients across different exchanges".
And while some other exchange are able to request information about positions that exceed the accountability level, they do not "require each and every position to be explained in terms of its underlying rationale", a second respondent said.
Consequently, the LME has amended several paragraphs in the document while deleting one altogether that ease this burden to "reflect the fact that where a position is in excess of the relevant accountability levels, the LME may request further information from the member or the member's client".
There is "no automatic reporting obligation on part of the member", it clarified.
The LME has always had the ability to drill down to see who holds what material, FastMarkets understands, but discussions between the exchange and the metal holders had been on a more informal basis.
The main difference is that the LME has now published the position thresholds at which it would approach members for an explanation.
For high-grade aluminium, single-prompt accountability and all-prompt accountability is set at 15,000 lots. Grade-A copper is at 7,000 lots, nickel 8,000 lots, lead 3,000 lots, tin 800 lots and special high grade zinc at 8,000 lots.
Until now, these levels have merely been guidelines that were used internally.
Failure to comply with the requirements outlined in the revised document would constitute a breach of the LME rules and may result in disciplinary action, the exchange warned, as would failure to ensure that a client has complied with its requirements.
The exchange could bring disciplinary action against all members with whom the client holds its positions.
It is not "appropriate" to detail the type of information required because this could limit the extent of information provided if a position-holder chooses to provide merely what is set out in the notice, the exchange said.
"The LME will not accept what are effectively one-word answers, but at the same time recognises that the degree of information that will be provided will be on a case-by-case basis," it said.
(Editing by Mark Shaw)