LME widens pricing information visibility

The London Metal Exchange (LME) has announced it will introduce what it calls “implied pricing” beginning Monday, July 30, for the base metals with pricing listed on its electronic trading platform, LMEselect.

The LME says access to the information is being introduced as part of its Strategic Pathway plan designed “to deliver greater user choice and market participation.”

Starting on July 30, the LME will make implied pricing “routes” available for what it calls its six main base metals (aluminum, copper, lead, nickel, tin and zinc). “Implied prices will show the best bid and the best offer for each implied route,” states the exchange, adding, “The LME will keep the performance of the outright pricing under ongoing review, with the aim of ensuring that it operates for the benefit of market participants.”

The LME indicates many existing users of its services (and financial investors in particular) seek exposure to monthly (or “third Wednesday”) prompt dates. These users have traditionally had access to monthly liquidity figures available from LME members in the telephone market or through members’ own electronic platforms.”

In the news release accompanying its announcement, the LME indicates it “expects this to remain the primary channel for the execution of larger monthly orders.” The exchanges adds, however, “In the context of its 2017 market-wide discussion paper, the LME learned that a number of new users would be more likely to commence LME trading if it were possible to execute smaller monthly trades through member-provided direct electronic access to the LMEselect screen.”

LME market participants will be able to see and access what the exchange calls “previously latent” liquidity on monthly dates through LMEselect. Implied pricing will result from combining the liquid three-month outright order book with the “carry” (or calendar spread) order book to create a picture of “the most competitive monthly outright orders in both the month before and the month after the rolling three-month date,” says LME. This, says the exchange, “will bring greater on-screen execution opportunities on those monthly outright dates.”

This same service has already been in operation in the LMEprecious market, covering gold, silver and platinum group metals, according to the LME.

“Implied pricing simply delivers a new way to access existing monthly liquidity,” states Matthew Chamberlain, the LME’s CEO. “We expect this additional option will appeal to those smaller fundamental financial investors not currently accessing our market who will now have the opportunity to see and trade quoted prices on the screen.”

John Browning of Hong Kong and Shanghai-based contract trading firm BANDS Financial says the change will result in lower fees for some traders and a reduction in “the sheer tedium and wasted hours of executing small, short-dated carries for clients.”

In a note to his customers, Browning adds, “In the medium term the LME will lose fee revenue, but in the longer term, the LME will hope to win back a large part of the volume that has moved to COMEX in recent years.”