Implied pricing

As part of the LME Strategic Pathway, the London Metal Exchange (LME) has expanded implied pricing functionality on LMEselect to include: aluminium, copper, lead, nickel, tin and zinc.

This functionality improves access to existing liquidity and tightens spreads for:

  • all the 3rd Wednesday outright order books preceding the 3-month (3M) rolling prompt and the nearest 3rd Wednesday order book immediately following the 3M prompt
  • the order books for cash contracts
  • associated carry order books connecting the 3-month and nearby 3rd Wednesday contracts or the cash contract.

As part of the temporary change to Ring trading, detailed in Notice 20/067, cash contract Official valuations will be determined by electronic trading activity. To support liquidity in the cash contract order books on LMEselect, the implied route between the cash and 3m contracts, linked via the CASH-3M carry, has been enabled effective 20 March 2020

We have produced a Guide to Implied Pricing for Base Metals which outlines in more detail what implied pricing is and how it works on our market.

The LMEprecious products have utilised implied pricing for all prompt dates since their July 2017 launch, and the LME Steel Scrap and LME Steel Rebar contracts have had implied pricing functionality enabled since July 2019.

In October 2019 the LME produced an Insight Piece which details the rationale behind implied markets and their growth story.

Implied pricing is way of creating (or implying) new prices and orders by combining two or more other orders (normally an outright with a carry) together.

An implied match executes all components of the trade simultaneously, with no possibility of slipping on any leg.

The concept is to improve liquidity and tighten spreads as well as providing the market with choice as to how they access monthly liquidity either side of the 3-month prompt.

The calculation of implied prices happens natively within LMEselect's matching engine, so that participants can trade with implied prices in exactly the same way they would trade with an explicit order.

Implied pricing is a functionality that works seamlessly within LMEselect and does not require the users to change any special settings or make any IT changes, as implied orders appear to participants as any orders do.

  1. All the 3rd Wednesday outright order books preceding the 3-month (3M) rolling prompt and the nearest 3rd Wednesday order book immediately following the 3M prompt (“implying out”)
  2. The cash contract order book (“implying out”)
  3. Carry order books connecting the relevant 3rd Wednesday order books or cash contract (see above) with the 3-month order book (“implying in”)
  4. 3-month rolling prompt order book (“implying out”)

Implied pricing 3rd wednesday

 Implied pricing trade date

The implied pricing functionality is always active for the cash contract and the 3M contract. However, the specific 3rd Wednesday prompts that can be implied may vary based on the date. We have provided some examples below to clarify certain cases:

Example 1:
On trade date 30 July 2019, the 3-month prompt date is 30 Oct 2019. The implied months are Aug 19 (21 Aug 2019), Sep 19 (18 Sep 2019), Oct 19 (16 Oct 2019) and Nov 19 (20 Nov 2019).

Example 2:
On trade date 17 Sep 2019, the 3-month prompt date is 17 Dec 2019. The implied months are Oct 19 (16 Oct 2019), Nov 19 (20 Nov 2019) and Dec 19 (18 Dec 2019). Note: The Sep 2019 3rd Wednesday date, 18 Sep 2019, has become the TOM contract and is no longer implied.

Example 3:
When 3-month date is a 3rd Wednesday date, the implied routes will still be enabled. On trade date 20 Aug 2019, 3-month is 20 Nov 2019 (which is the 3rd Wednesday in November). The implied months are Sep 19 (18 Sep 2019), Oct 19 (16 Oct 2019) and Dec 19 (18 Dec 2019).

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For further information please email our Sales team.