LME delays metal delivery volume rule

The London Metal Exchange (LME) has opened a two-week consultation to invite comments on possible antiabuse provisions that would govern the application of its proposed queue-based rent capping (QBRC) rules. The QBRC rules are part of the LME’s warehouse reform effort that dates back to November 2013.

On July 1, 2015, the LME sought feedback on a proposal to introduce a cap on the rent charged for metal in a queue. It suggested that, from May 1, 2016, warehouses that failed to deliver stored metal within specified periods would be required to discount the rent charged to the affected metal owners. That consultation closed Aug. 17, 2015.

The LME says it also is aware “that it could be possible for a metal owner to request delivery of a large amount of metal at once, and thus take advantage of QBRC to create load-out queues, which would allow them to benefit from the rent discounts applicable under QBRC.”

To counter this, the LME has proposed an antiabuse mechanism that would stagger the dates at which the rent caps would come into effect “to more accurately reflect the load-out schedule agreed [to] by the warehouse company and the metal owner.”

The LME says it “has given careful consideration to the results of its July consultation, and is currently minded to proceed with the implementation of QBRC, along with the increase to the minimum load-out rate for metal stored in LME-approved warehouses (LORI) also proposed in that consultation. However, a final decision regarding these measures will only be taken once the LME has finalized its analysis, including whether or not it is possible to adopt appropriate anti-abuse measures.”

The time required for the new consultation round means the LORI implementation date of Dec. 14, 2015, outlined in the July consultation, should be pushed back to March 1, 2016, says the LME.

“The LME has always highlighted the potential for QBRC to be used by metal owners to achieve free storage at the expense of warehouses. In the feedback to the consultation, a number of respondents felt this was a significant concern, requiring a specific anti-abuse provision,” says Matthew Chamberlain, LME head of business development. “We want the market to know we are listening to these concerns, and we certainly do not want QBRC to be a source of abuse. The launch of this follow-up consultation reflects this.”