The London Metal Exchange (LME) is facing pushback from financial industry groups over its proposal to require private deals between members and clients to be executed on its Select trading system. The LME aims to increase transparency and liquidity, but critics argue that the mandate will raise costs and stifle competition. The Futures Industry Association (FIA) and the Association for Financial Markets in Europe (AFME) have voiced concerns, and some LME members have also raised the issue with the UK's Financial Conduct Authority (FCA).
Two financial industry groups have raised concerns with the London Metal Exchange about its plans to require private deals between members and clients to be carried out on its own platform, five sources with knowledge of the matter said.
The LME wants its members to transact so-called over-the-counter trades of up to 10 lots, equivalent to 250 metric tons of copper for example, on its Select trading system. It also wants them to hedge such trades on Select. This contrasts with COMEX, which is part of US-based CME Group and offers copper, aluminum and other metal contracts. COMEX does not require its members to carry out OTC trades on its systems. The Futures Industry Association and the Association for Financial Markets in Europe sent a joint letter to the LME laying out members’ concerns in December.LME brokers typically complain about revenue raising moves such as trading and clearing fee hikes and costs of other requirements such as reporting OTC trades. “We recognize the LME’s ongoing efforts to enhance transparency and market structure and are engaging constructively with them on relevant proposals,” AFME and FIA said in response to a request for comment. Three of the sources said LME members had also raised the issue with Britain’s Financial Conduct Authority . The watchdog declined to comment on this or whether it had been consulted about the LME’s plans. The LME said its aim is to increase transparency and liquidity and it welcomed feedback “from all LME stakeholders” on a market structure modernization plan announced in September. “We are confident that the planned measures will lead to better outcomes for the market as a whole,” the LME said in response to a request for comment. “We expect the changes will require some of our members to adapt their business models … full details of the measures will be put forward and formally consulted on in the first half of 2025,” the 148-year old exchange added. Initially the LME published a white paper on its proposals. At that time it had planned only to consult on changes to its Rulebook needed to implement the proposals. Industry sources say members want the LME to drop its plans requiring its members to transact OTC orders for its most liquid three-month and monthly contracts of up to 10 lots on Select from the second half of 2025. LME members also want to know how the 10 lot number was determined. They are worried it will not stop there and that the exchange will keep raising the limit to draw in more OTC trades. A proposal that OTC contracts amounting to less than 10 lots using LME prices must be hedged on its own electronic system has led some to suggest that the LME is trying to ban brokers and banks from netting their buy and sell orders internally and stop them from hedging on other exchanges, such as COMEX.Dealers are quoting prices for gold at the BOE at discounts of more than $5 an ounce below spot in London.Once scaled to commercial production, the facility in Durham will have a production target of at least 10,000 tonnes a year.Beyond the short-term volatility created by Donald Trump's tariff machinations, it's likely that the longer-term trend of the world splitting into two trading blocs is accelerating.
FINANCIAL INDUSTRY LONDON METAL EXCHANGE OTC TRADES COMEX MARKET STRUCTURE MODERNIZATION
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