In November 2013, following a three-month market-wide consultation, the LME launched a warehouse reform package with twelve key elements.
Nine of these elements have already been implemented:
1. Linked Load-In / Load-Out Rule (LILO)
From 1 August 2015, the decay factor under the LILO rule will be increased from 0.5x to1.0x to coincide with the start of the Third Calculation Period under LILO. This adjustment in the decay factor will, broadly, increase the rate at which queues will fall at affected warehouses, provided such warehouses continue to load in metal.
2. Separate steel load-out rate
3. Per-warehouse queue length report
4. Commitments of traders report
5. Creation of the Physical Market Committee
6. Specific powers for the LME to address behaviour that creates or maintains queues (clause 9.3.4 – now clause 9.3.5 – of the Warehouse Agreement )
7. Information barrier policy review
8. Amendments to LME policies and procedures resulting from an independent logistical review
9. Changes to the Warehousing Agreement following independent legal review
The tenth item:
10. Premium futures contracts for aluminum – required modifications to the LME’s warehousing policies in order to function effectively. These changes have been consulted upon and the contracts are due to be launched in Q4 2015.
The final two items are:
11. LME powers to cap or stop rent in queues (queue-based rent capping or “QBRC”)
12. LME powers to cap rents and FOT rates (“CC”)
These were both subject to a Discussion Paper which closed on 2 May 2015. The LME is now consulting on the proposed implementation of QBRC as well as a proposed increase in the minimum load-out rate (“LORI”) at all LME-listed warehouses. This Consultation will be open until 17 August and the LME welcomes comments and feedback from all market participants. The LME is proposing to adopt a “wait and see” approach to CC, reserving the right to implement it in the future, should the structural issues caused by high rents, FOT rates and incentives persist.
All the changes outlined above are designed to address the need to ensure that the LME’s warehouse network fully serves the requirements of the global metals market.
Documents relating to the LME’s warehouse reforms can be found below. Should you have any questions related to the consultation, please contact us at firstname.lastname@example.org