The London Metal Exchange (LME) is introducing an electronic Closing Price trial for LME Nickel, beginning 18 March 2019.
The trial, which runs for three months, will use LMEselect (electronic) trades to determine the 3-month nickel Closing Price whilst all other nickel Closing Prices will still be determined basis Ring (open-outcry) trading.
To coincide with the trial and to enable participants to electronically trade the Closing Price before the Closing Price is discovered, we are also introducing a trade-at-settlement (TAS) order book on LMEselect for 3-month nickel Closing Prices. TAS goes live on 18 February 2019.
The trial is important because we hope the resultant data and feedback will to help inform any possible future decision on the best way and place to establish LME Closing Prices.
The decision to carry out a trial comes after extensive and wide-ranging feedback from the market (see LME Strategic Pathway) regarding the LME’s current Ring-based Closing Price discovery mechanism.
3-month LME Nickel Closing Price: Will be determined via a volume-weighted-average-price (VWAP) of LMEselect trades between 17.00 and 17.02, rounded to the nearest $1/mt. Currently the 3-month Closing Price for LME Nickel is discovered basis Ring trading.
Carries and non 3-month Closing Prices: The determination of the Closing Price for carries (and thus for prompt dates other than the 3-month) will continue to be based on Ring trading between 16:55 and 16:59.
Ring traders will still be permitted to trade 3-month outrights during the kerb period, but these trades will not contribute to the determination of the Closing Price.
“LME Closing Prices” are used for end-of-day valuation and margining purposes.
“LME Official Settlement Prices”, discovered between 12.30 and 13.15 on the Ring, on the other hand, are used as reference prices in physical deals.
“Trade-at-settlement” is so called because TAS functionality on other markets allows participants to trade the unknown “settlement price” - the price which determines daily margin. On the LME, the price used to determine daily margin is the LME Closing Price, (not the LME Official Settlement Price) and so LME TAS uses the LME Closing Price.