London 06/04/2016 - The London Metal Exchange (LME) has released a discussion paper on warehousing charges outlining possible reforms to the LME physical network.
These are designed to address market concerns as to whether customers are treated unfairly and unreasonably in respect of the rates of LME rent and free-on-truck (FOT) charges levied by LME-registered warehousers, the exchange said in a release on Wednesday.
The discussion paper puts forward several discussion items on which the LME wishes to test the views of the market.
These include the introduction of fixed-term warehouse agreements (FTAs), which convert the LME warehouse agreement from an "in perpetuity" model to a "fixed term" model, with particular focus on warehouses' headline warehousing charges when renewing LME-listed warehouse status.
Other items are charge-capping (CC), implementing a rule limiting headline warehousing charges; charge threshold guidance (CTG), which are thresholds or "shadow caps" as guidance for headline warehousing charges; and charge-based incentive guidance (CBIG), which covers the monitoring headline warehousing charges through the use of the LME's incentive reporting and monitoring powers.
Finally, the LME is seeking feedback on FOT Conversion (FOTC), which is the conversion of the LME contract from an "inwarehouse" contract (buyer pays FOT) to an "FOT-paid" contract (seller pays FOT) and the application of information barriers (IB) to all warehouse companies.
Any rule or rule change that might be proposed following this discussion paper may be subject to consultation with the market prior to implementation, the exchange said.
All feedback must be received by May 18; the exchange will aim to provide an update to the market by July.
(Editing by Mark Shaw)