London 01/07/2015 - The LME has already submitted its proposed consultation into queue-based rent caps (QBRC) to intensive legal scrutiny to ensure that it could stand up in court should it go ahead, it said.
The LME has launched a market-wide consultation on recommendations to introduce a cap on the rent charged for metal in a queue.
"We don't want litigation in this market. [It's] not that we do not think we will not win - we have proven we can defend what we do - but litigation is disruptive and we don't want it to happen," Matt Chamberlain, LME head of business development, said at a press conference here on Wednesday.
"So what we do believe is that May 2016 means litigation is reduced as [we are] not targeting existing queues. We obviously can't rule it out but [we are] clear that that legal analysis is watertight," he added.
To ensure no warehouse company is unfairly disadvantaged, QBRC could be implemented on May 1 next year, the LME suggested.
"[We are] giving the market significant notice so they can adjust their business models," LME CEO Garry Jones added.
The exchange is confident that even, if challenges do arise, its existing linked-in/load-out (Lilo) regulations would be safe.
"Even if we were to get a legal challenge about QBRC it wouldn't change the fact we have Lilo in place," Chamberlain said. "It is good we stepped through this - if we had introduced everything at once then legally everything could be held up together."
"We have erred on the side of caution [and] think by putting these steps in place we stop the problems re-occurring," Jones added.
Under the new measures, warehouse companies that fail to deliver out metal held in queues within 30 calendar days would be required to halve the maximum published rent charged to the affected metal owners.
After 50 calendar days, no rent could be charged at all. This would remove any economic benefit for warehouse companies in maintaining a queue.
While some warehouse operatives are concerned that the new measures would be open to abuse, Chamberlain said there are rules in place prohibiting any such moves.
"There is a conspiracy theory in the market that what metal owners could do is cancel large amounts of metal and then the warehouse would not be able to process that and then the metal owner would get free storage as a result – just to be clear, if that behaviour was going on, the LME would consider that abuse," Chamberlain said.
"We have the right to dis-apply QBRC if it is abused and would not hesitate - warehouses shouldn't be concerned that they will be a victim of attack from metal owners creating queues and getting free storage," he added.
The LME recognises that charge-capping may bring several benefits but notes it would have a significant effect on warehouse companies. It therefore proposes to take a 'wait and see' approach.
(Editing by Mark Shaw)