LME proposes additional contracts

The London Metal Exchange (LME) is considering the launch of eight new cash-settled futures contracts starting in January 2019. Of the eight contracts, three are regional hot-rolled steel coil contracts (for North America, Northern Europe and FOB China); two are regional aluminum premium contracts (United States and European duty unpaid); and the others are for alumina, cobalt and molybdenum.

The LME has launched what it calls a consultation on proposed rule changes pertaining to its Strategic Pathway plan. The process by the LME and its LME Clear can pave the way for the new contracts. The LME states it is proposing rule changes “to enable a new streamlined approach to selected contract launches where the LME sees potential future success.”

“Dynamic instrumentation means that we will be technically able to launch products in response to market demand, at a low cost and with little administrative burden,” says LME CEO Matthew Chamberlain of the precontract launch phase. “This is not to say that we won’t continue with our usual targeted approach to selected product launches – lithium is a good example of where we are working very closely with the industry to ensure we provide the right risk management solutions for this expanding market – but it means we can now employ a variety of product development approaches to ensure continued growth across our contract offering.”

Additional proposed rule changes pertain to the LME carrying out its three-month electronic price discovery trial for LME nickel three-month closing prices in the first quarter of 2019. The LME says it is initiating a market engagement exercise to enable members and other market participants to provide feedback on the approach to and proposed parameters of that trial.

“The trial comes as a result of views expressed by a number of users in response to last year’s Discussion Paper, who stated their preference for an electronically derived methodology for determining closing prices,” says Adrian Farnham, LME Clear CEO. “While our decision to conduct this exploratory trial in no way prejudges the LME’s view on the most effective price discovery model, we believe the trial is an essential step in gathering the data needed to take such a view. Once we have collated this data, which we aim to share with the market, we can begin to properly assess the relative effectiveness of electronic and Ring-based price discovery.”

LME official prices and all other LME closing prices except for three-month nickel will continue to be determined on the trading ring during the trial period, and once the trial is complete price discovery will revert back to the ring. The engagement period with customers regarding the nickel trial parameters will close on Sept. 28, 2018.

The exchange also says it is preparing to launch LMEprecious options (for precious metals) toward the end of 2018. The proposed European-style options will expire into the relevant underlying monthly LMEprecious futures contracts out to 24 months forward, according to the LME. Closing prices will be based on submitted volatilities and will expire against the existing LMEprecious reference prices.