London 05/07/2016 - The London Metal Exchange (LME) will consult its members on new policies and amendments to its rulebook intended primarily to shore up its ability to intervene when markets turn disorderly.
Amending its rulebook would enable the exchange to implement procedures to establish the maximum price fluctuations on the market for each metal contract, which could in turn lead to the restriction or suspension of business, it said in a release on Tuesday.
The proposed changes are intended to ensure the exchange "can maintain a fair and orderly market for each metal contract in circumstances where there are significant price fluctuations", the LME said.
It will also consult on a new risk management policy - where members choose to provide order-routing facilities to clients, they must ensure that pre-trade risk management controls are in place. The member must not rely on any client controls but can rely on controls implemented by the LME such as its pre-trade risk system (PTRM) system.
As is, the LME rulebook only refers to Select when covering connectivity to the exchange for members - under its proposed changes, it would cover connections with all exchange systems. Members are no longer required to have an LMEnet connection.
As well, revising its error trade policy would reflect a clear distinction between instances where members may request that a trade be invalidated and those where the exchange determines an error trade has been executed.
The LME also proposed changing the definition of 'contract' - it would now include contracts for the purchase and sale of one or more lots of metal for the time being dealt on the exchange where the buyer/seller is a category three member.
It could also amend the ruling governing the management of positions in the event of a declaration of a prompt date. This would clarify that where trading has already taken place for a prompt date; any open positions would then be rolled to the next available date or any date as the exchange determines.
The exchange requested comments on the proposed change regarding errors in the ferrous index. Members should notify the LME no less than 30 minutes after the ferrous final settlement price has been published and the index provider will investigate and, if necessary, correct.
It will also consult on proposed changes to its rulebook and the removal of Select operating procedures, proposing instead to incorporate elements of Select operating procedures into the wider rulebook.
The growth of trading via Select in recent years makes it " appropriate that the procedures be incorporated into the LME rulebook such that the LME is a single document governing all trading activity on the exchange regardless of the venue on which a trade is transacted", it said.
For category five and six members, the LME also suggested that failure to pay for membership for more than 60 calendar days should be seen as an indication of that members' intention to resign.
A response from members is required no later than July 31.
(Editing by Mark Shaw)