(Updated to include feedback and responses from market users)
London 29/04/2016 - The London Metal Exchange (LME) will introduce accountability levels for some contracts from July 4, it said on Friday.
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.
The accountability levels apply to any member and/or client trading LME contracts and will apply to positions held at the end of day, the exchange said ina notice on Friday.
"The request to provide additional information will be made to the member who is holding a position, either directly or on behalf of their client(s), which is in excess of the relevant accountability level," it said.
"For the avoidance of doubt, members and their clients may - unless directed otherwise - hold positions that are in excess of the accountability level," it added.
Upon request, members are required to provide all relevant information relating to the position to the LME.
Failure to comply with the requirements of this document or with a direction issued by the exchange 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 requirements.
The LME already scrutinises all positions held on the market and has long-running lending rules that limit the potential for large holdings to create a disorderly situation.
Last month the exchange said it was looking to bring in increased accountability for large market positions. The proposal could help stem squeeze frustration, particularly in the aluminium market, market participants said at the time.
The LME also released a summary of feedback and responses from market participants.
One participant worried that the accountability levels might be set too low, especially for short-dated carries.
The LME responded that the accountability levels are "appropriate, reasonable and proportionate" as they are based upon a two-year lookback at the spread of positions relative to open interest.
"There has been no look-across between the metals as the intention is to identify positions that would be of interest in terms of size in each metal. For the sake of ease of implementation, the levels have been set the same for both single prompt as for all prompts, but this may change over time," the LME said.
Another participant believes that the accountability levels may be considered to be limits and hence constrain trading.
The LME replied that other markets have both accountability levels and position/delivery limits in place, so many market participants are already aware of the difference between the two.
"Further, when position limits are introduced with MiFID 2, even more firms will be made aware of the distinction. The LME further notes that the proposal makes it clear that the accountability levels are not limits," the LME said.
Several participants expressed concerns that the new rules may have unfortunate commercial consequences. For example, one suggested that some firms might not want to be subject to increased regulatory oversight.
"The regulatory environment continues to evolve as one where market participants are required to provide more information to regulators as a matter of routine. The LME therefore believes that the proposed accountability levels are proportionate, reasonable and necessary," the LME said.
And finally there were a number of logistical questions - one respondent claimed that it will take their IT department three to six months to implement new systems.
"As there will be no automatic reporting obligation so there will be no IT impact arising from the implementation of accountability levels," said the LME. However, the exchange did push back the launch date to July fourth so members can prepare.
(Editing by Mark Shaw)