LME addresses possible effects of sanctions on trading

The London Metal Exchange (LME) has shared its understanding of how recent sanctions that the United States, United Kingdom and European Union have levied against Russia and Belarus could affect trading, ordering its members that have positions with individuals or entities subject to these sanctions not to make payments to them.

The organization says its priority in “challenging” geopolitical situations “is to ensure that an orderly market is maintained, which includes providing a reliable price reflective of global market conditions.” The LME adds that it has procedures and powers to take actions that could be required to ensure the stability of the market when sanctions are introduced.

In his Feb. 22 Executive Order, U.S. President Joe Biden in part prohibits investment into certain Ukrainian regions (nongovernment-controlled Donetsk and Luhansk) and imports of goods from those regions. The EU has expanded its sanctions against Russia and Belarus to include 160 additional individuals suspected of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, “including 14 oligarchs and prominent businesspeople involved in key economic sectors providing a substantial source of revenue to the Russian Federation—notably in the metallurgical, agriculture, pharmaceutical, telecom and digital industries—as well as their family members.”

The LME and LME Clear do not have any Belarussian or Russian entities as members, nor do its members have any open positions, directly or indirectly, with Belarussian individuals or entities that have become subject to sanctions, the exchange says. However, the LME adds that it “understands that a small number of members may have open positions, directly or indirectly, with Russian individuals or entities which have become subject to sanctions. Where this is the case, the member must ensure that it takes immediate action to achieve sanctions compliance, including ensuring that no payments are made to any sanctioned person.”

The LME says one aluminum alloy brand, URV, is produced by TPK Urksplav Ltd. in one of the regions affected by the U.S. sanctions, though it is suspended and has no stock on LME warrant. “For completeness, we note that there are also two lead brands produced by CJSC ‘SVINETS’ in Donetsk, but these are not produced in the affected part of Donetsk and are therefore not impacted by [President Biden’s] Executive Order.”

Regarding the sanctions announced by the EU Feb. 28 against Alisher Usmanov and by the U.K. March 10 against Oleg Deripaska, the LME says it understands that these sanctions do not affect any of its listed brands.

In terms of the Russian restrictions on exports and imports introduced March 8, the LME says, “It is our understanding that these restrictions do not include metals and therefore do not affect LME brands.” 

The LME says it does not believe that exclusion of some Russian and Belarussian entities from SWIFT, the global provider of secure financial messaging services that connects more than 11,000 banks, financial institutions and corporations in more than 200 countries and territories, will directly affect the LME’s market or the existing stock of metal on warrant.

“The LME maintains a list of global metals brands, and the metal produced by these brands can be placed on warrant and stored at an LME registered warehouse,” the trading exchange says. “A warrant is used to settle a relevant LME contract. In the event that any brand is subject to sanctions, we are in a position to respond swiftly and appropriately to take action in respect of the brand. Such action might include suspending the brand or suspending production from a certain date. Due to the global nature of the LME brand list, continuity of supply can still be achieved even in the event of some brands being sanctioned due to their location.”

The LME says its members must comply with all relevant sanctions requirements and ensure that any business conducted by or through them does not cause the LME or LME Clear to be in breach of any relevant sanctions requirements. It advises members that have positions with or for the benefit of any sanctioned entity to contact the LME to confirm their positions and the action they are taking.

The LME says it anticipates that it will remove the “auto-repay” function from LME Clear or the relevant account within LMEmercury, which should assist with sanctions compliance by ensuring relevant payments are not made automatically.