COVID-19 preparedness

Updated: 11 May 2020

Matthew Chamberlain, LME CEO, provides a brief update as to what’s been happening at the LME and in the metals markets more broadly over the last few weeks since introducing business continuity measures in response to the global spread of COVID-19.

  • The LME has robust business continuity procedures in place designed to deal with a wide variety of potential developments to ensure service resiliency, availability and stability across our platforms, during and around unforeseen events, crisis, or out-of-the-ordinary operating environments.
  • The LME’s framework has modelled and anticipated a broad range of scenarios, including pandemics.
  • The LME enacted its BC pandemic plan in early 2020 in response to the outbreak of COVID-19 to address potential risks.
  • The LME places the utmost importance on managing the health and safety of its staff, its Ring dealing member teams and the wider community, as well as maintaining a stable and orderly market.
  • The pandemic plan includes necessary protocols as part of a response to a number of contagion/infection related scenarios with preparations undertaken to ensure an efficient, effective and appropriate response should a suspected or confirmed case arise.
  • The LME’s plans consider the end-to-end provision of business services including its vendors and business partners.
  • The LME has implemented the following measures in response to the spread of COVID-19 and to mitigate contagion risk and maintain an orderly market:
    • Home-working for LME employees
    • Contingency plans for LME Ring trading, the warrant depository function and other potential physical supply issues
  • The LME continues to monitor the evolving situation, including UK Government guidance and measures initiated, and will also continue to liaise with industry bodies, regulators and experienced business continuity professionals.
  • Additionally, the LME has issued weekly updates to members on policy changes as the situation evolves.
  • The LME’s pandemic plan enables it to continue to serve the metals and financial community with all its business services available.
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    Ring trading

    • The LME temporarily moved to fully electronic pricing on Monday 23 March 2020 (with prices being calculated on the basis of electronic market activity on LMEselect). Ring trading is being suspended until conditions normalise in respect of COVID-19, at which point Ring trading will resume. During this period, trading will be conducted via LMEselect and the inter-office market. 
    • The LME issued its latest BC pricing procedures for the determination of Official and Closing Prices on 19 March 2020 following detailed further analysis by the LME in the light of the COVID-19 situation and with invaluable input from members. 
    • We are grateful to members and the wider metals community for working with us to enable the smooth transition from Ring to electronic pricing. While we are keen for the Ring to be back up and running, the health and safety of our staff, of our Ring members’ staff, and the duty we have to minimise infection rates for the benefit of society will always be our priority. Therefore, in light of the UK government guidance of 10 May 2020, which continues to prioritise the importance of social distancing, we – with the support of the majority of our Ring dealing members – do not currently plan to re-open the Ring until such time as it would be consistent with the government’s social distancing guidance. We will continue to review the guidance and remain ready to re-open the Ring in London or, if necessary, at our BC site in Chelmsford once it is safe to do so.
    • The benchmark methodologies for the Official Prices and Closing Prices continue to apply, with the LME relying in particular on its ability to calculate Official Prices and Closing Prices on the basis of LMEselect activity.
    • Given the temporary suspension of Ring trading, the LME had planned to roll out additional trade-at-settlement (TAS) order books on its base metals contracts. However, following a comprehensive discussion at the LME User Committee, the LME is now not proposing to proceed with this deployment. While the LME is technically ready to launch these TAS order books, the User Committee agreed that the current electronic pricing mechanism is working very effectively, and that there was hence no need for this additional functionality at this time. The LME’s temporary electronic pricing model will continue to be constantly monitored and reviewed (with further input from the User Committee, and any other market participant who wishes to input their views) to ensure that the market continues to operate in the most effective possible manner.

     

    Depository and warehouse operations

    • The LME and its depository provider are working together on contingency plans. Currently the depository service has not been affected by the Coronavirus outbreak and the depository has taken additional steps to minimise the risk to its current operating model. These measures include deploying staff to various locations to avoid cross contamination between teams, and enhanced hygiene practices. Should a member of staff contract the virus the current plan is for the depository service to cease for a time to allow for a deep clean of the premises before a new team can be brought on site to support the service offering. As a result of these measures, Members may experience a delay during times of peak activity in relation to their lodgement or withdrawal instructions.
    • Given the dynamic nature of the current situation, we would encourage Members to be forward-thinking in terms of their warranting needs. There are currently many more warrants in the depository than needed for settlement, and the transfer of those existing warrants is an entirely electronic process. It is of course possible that, in an extreme situation, the virus could disrupt the physical movement of metal or the shipment of new warrants to the depository, and the LME always encourages short position holders to ensure that they have warrants available for settlement.
    • Additionally, the LME has received a number of questions and concerns about the possibility of market tightness or physical supply disruption caused by difficulties in putting metal on warrant or delivering metal in to and out of warehouses.
    • As a general point, the LME expects its listed warehouses to have robust procedures in place to deal with the effects of COVID-19, and warehouses should make every effort to continue to meet their obligations under the Warehouse Agreement and applicable policies.
    • Nevertheless, the LME is conscious that the nature of COVID-19 means that it is foreseeable that a Delivery Point, or an individual Warehouse within a Delivery Point, is forced to shut for a period of time. If a Delivery Point as a whole is shut, then it follows that all the Warehouses operating within that Delivery Point would also be unable to operate. Given these risks, the LME has developed procedures to manage the temporary unavailability of a Warehouse or Delivery Point as a result of COVID-19, in line with the provisions of the Warehouse Agreement and addressing potential issues around delivery obligations, warranting, and rent payments. These procedures have been discussed with the LME Warehousing Committee and would only be invoked (via LME Notice) in the event of closures relating to COVID-19.
    • In addition, the LME has contingency plans in place to enable warehouse listings to take place remotely – on a temporary basis – should it become necessary to do so. This will ensure that listings for additional warehouse space can still be considered, as long as supporting evidence can be provided to show that the warehouse meets the LME’s listing criteria.
    • Further, it is worth noting that the LME’s Special Committee has a broad range of powers to ensure an ongoing orderly market.

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