London 15/09/2015 - The London Metal Exchange will look at introducing position limits for its forthcoming premium hedging contracts, it said on Tuesday, as part of a broader consultation with interested parties.
This is because it is not possible to apply its current lending guidance for these contracts - four regional aluminium variations will start trading on November 23. Lending guidance is designed to restrict squeezes and prevent disorderly markets.
"The premium contracts will have monthly prompt dates rather than daily and weekly prompt dates. Therefore, a requirement to lend to the market at a set price would not be viable in this case and the Lending Guidance will not apply when trading Premium Contracts," it said in a notice.
This position limit regime will only apply to trading premium contracts, it added, although the power to introduce these is classed as a general power. This is because further position management regimes may be required by MiFID or other applicable legislation.
"Full details of the applicable limits and operation of the premium contracts position limit regime will be published by the exchange by way of notice," it also said.
As well, the LME is seeking views on the proposed trade compression service for LMEClear where members could compress several open positions to a smaller number, reducing these to netted obligations.
Also, there are rule changes needed for the new ferrous contracts and 'back-invoicing' processes. The consultation will run until October 15, the LME added.
(Editing by Mark Shaw)