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
Having launched in November 2018, the change improves access to existing monthly liquidity and tightens spreads for:
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.
Implied pricing is way of creating (or implying) new prices and orders by adding two other prices (normally an outright with a carry) together.
The idea 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.
* The LME may vary the routes available for implieds on a metal by metal basis
The outright months implied are the nearest 3rd Wednesday order books on either side of the 3-month contract. For aluminium, all 3rd Wednesday order books prior to the 3-month contract are available.
The 3rd Wednesday contracts can vary based on the date. We have provided some examples below:
On trade date 30 July 2018, 3-month is 30 Oct 2018, so the implied months are Oct 18 (17 Oct 2018) and Nov 18 (21 Nov 2018).
On trade date 17 Sep 2018, 3-month is 17 Dec 2018, so the implied months are Nov 18 (21 Nov 2018) and Dec 18 (19 Dec 2018).
When 3-month date is a 3rd Wednesday date, the implied routes on both sides will still be enabled, meaning that three 3rd Wednesday dates will have liquidity:
On trade date 21 Aug 2018, 3-month is 21 Nov 2018 (which is the 3rd Wednesday in November), so the implied months are Oct 18 (17 Oct 2018) and Dec 18 (19 Dec 2018)