As part of the LME Strategic Pathway, the London Metal Exchange (LME) is expanding implied pricing functionality on LMEselect to include:
aluminium, copper, lead, nickel, tin and zinc
Due for staggered go-live after 30 July 2018, the change is designed to improve access to existing monthly liquidity and tighten 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.
Prices will be implied for the nearest 3rd Wednesday order books either side of the 3-month prompt. But given the month in which that 3rd Wednesday can fall varies, we have provided some examples below:
On trade date 30 July 2018, 3-month is 30 Oct 2018, so the implied months will be 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 will be Nov 18 (21 Nov 2018) and Dec 18 (19 Dec 2018).
When 3-month is a 3rd Wednesday, 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 will be Oct 18 (17 Oct 2018) and Dec 18 (19 Dec 2018)