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.
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.
The LMEprecious products have utilised implied pricing for all prompt dates since their July 2017 launch, and LME Steel Scrap and LME Steel Rebar contracts had implied pricing functionality enabled in 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 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 3rd Wednesday implied contracts can vary based on the date. We have provided some examples below:
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).
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.
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).