London 14/01/2015 - The London Metal Exchange (LME) is exploring ways to boost participation and liquidity on its electronic platform, LMEselect, focusing on increasing liquidity on existing standard monthly 'third Wednesday' dates to provide a simpler way to trade those futures, it said.
"Market convention on the LME is that the standard monthly settlement date is the 'third Wednesday' of each month. By enhancing liquidity on LMEselect for these 'third Wednesdays', we believe we can meet demand for a more traditional futures-style trading, offering the option to place bids and offers on outright monthly dates, without altering the unique structure of our market," Matthew Chamberlain, head of business development at the LME, said on Wednesday.
As such, the LME proposes to relax the LMEselect order-to-trade ratio on 'third Wednesdays' to encourage greater participation by users - it is seeking members views on this proposal in a four-week consultation that starts today.
At present, the LME operates an order to trade ratio of 50:1 - meaning that one lot must be executed for every 50 order-entry actions by an LMEselect participant. This restricts market-makers in illiquid markets when initial trade volumes could be low - users would be charged for breaching the ratio.
"The LME is proposing that outright 'third Wednesday' order actions be excluded from the LMEselect order-to-trade ratio calculation of members' and members' clients' order flow for the first six tradable months for aluminium, copper and zinc," it said.
Additionally, the LME plans to provide incentive programmes for users and to display implied prices, based on bids and offers in the order book, which could contribute further volume and liquidity to the electronic platform.
The LME is the largest non-ferrous metals market in the world. It has a unique trading system - the first 90 days are all tradeable, with the three-month price the accepted benchmark. Beyond that, it has weekly contracts out to six months and then monthly contracts, stretching out to 10 years in the case of copper, aluminium and zinc. Beyond six months, these are traded on the 'third Wednesday' of the month.
More than 65 percent of the open contracts on the LME are set to expire on the same monthly dates, pointing to substantial market demand for a more standardised way to trade, the LME added.
(Editing by Mark Shaw)