9 July 2020
The London Metal Exchange (LME) today proceeds with publishing collated off-warrant stocks data, designed to deliver increased transparency of global metal availability.
By providing visibility over a broader set of material, which may potentially be put on LME warrant in the future, the market will be able to trade on the basis of a more holistic supply story, and provide further confidence to market participants in respect of the deep underlying physical liquidity of the LME’s contracts.
“Having completed our analysis of four months’ worth of off-warrant stocks data, we are satisfied with the reporting method and confident that the data may be of use to market participants,” said Matthew Chamberlain, LME chief executive. “I would like to thank our warehouse companies and metal owners for their constructive approach to the new reporting regime. As we expected, there is still more work to do around increasing the voluntary reporting of stocks and we’ll be engaging with our market conduct working group to take this forward.”
The new reporting rule, which came into force on 1 February 2020, states that warehouse operators must report off-warrant stocks data to the LME where the metal owner stores material under an agreement requiring the use of LME-registered sheds (“LME facility storage agreements”), under an agreement where the owner has a right to warrant metal on the LME in the future (“LME warranting agreements”), or where the metal owner chooses to report their stock (“LME voluntary reporting agreements”).
As far as possible, the LME is confident that data is being properly reported in respect of LME facility storage agreements and LME warranting agreement categories. While this will not capture all warrantable material, it does – in the opinion of the LME – represent metal with a reasonable likelihood of being warranted over a short-term time horizon, and therefore likely to impact stocks figures and, potentially, market conditions.
The LME expects that market participants will form their own views as to the representativeness of the data, and hence the extent of its use in market models and strategies. The LME is, of course, open to the views of market participants as to the usefulness of the data set.
In line with its expectations, the LME received little data under the voluntary reporting category. The Exchange has decided, therefore, that the subset of voluntarily reported data will not be published to the market at this time.
The LME will consider how best to promote more voluntary reporting, which may include placing a greater warranting fee on metal not voluntarily reported at the earliest opportunity. This topic will be analysed further in collaboration with the LME’s market conduct working group, and the LME will notify the market of any next steps in due course.
Going forward, the LME will publish off-warrant stocks data – on a per-warehouse location and per-metal basis – on the tenth day of every month and on a one-month-delayed basis. The first set of off-warrant stocks data is available today on our website.
• All materials related to the consultation and discussion paper on LME warehouse reforms are available here.
• Off-warrant stocks data can be found here.