LME warrants

LME warrants are documents that represent an entitlement to a specific lot of LME-approved metal. Warrants can only be issued if the underlying metal conforms to the quality requirements details specified by the LME, so as well as an ownership document, a warrant also acts as a form of insurance against the quality of the metal a buyer will receive.

Following feedback from and engagement with industry stakeholders, the LME has streamlined the warrant lodgement and withdrawal process by introducing a new dematerialised (electronic) warranting process. Since 1 March 2021, instead of physical paper warrants, all LME warrants are digital*. The LME will act as depository, holding rights in the warrant and, where relevant, immobilised warrant (as well as rights in the underlying metal) on behalf of the account holder in LMEsword.

These changes bring significant operational efficiencies for users – including, for example, the removal of volume limits for warrant processing, the reduction in risk of physically transporting paper warrants to and from the depository vault and the associated costs involved in these manual processes.

*Apart from warrants relating to metal located in South Korea – these will be printed, but immobilised, in the LME Depository.

Why have we changed the current model?

After extensive market feedback the LME became aware of the issues experienced by its Members during peak periods of activity at the Depository. The LME has therefore streamlined the warrant lodgement and withdrawal process by adopting a new dematerialised (electronic) warranting structure, which enables a volume insensitive, electronic lodgement and withdrawal process that benefits our members and the wider ecosystem. 

How does the new electronic warranting structure work?

Previously, physical warrants were issued by Warehouses through their London Agents. The London Agent printed the warrant then the Member collected it and deposited it with the Depository in a secure vault. The Depository then held the warrant (and rights in the underlying metal) on behalf of the account holder in LMEsword.  

Under the new electronic warranting structure, the lodgement and withdrawal of warrants now occur electronically, so no paper warrants will need to be taken to the Depository by the Member. Once lodged, the warrant will now exist in electronic (‘dematerialised’) form (except for warrants issued by warehouses in South Korea which are printed, but immobilised, in the Depository). The LME acts as a Depository, holding rights in the warrant and, where relevant, immobilised warrant (as well as rights in the underlying metal) on behalf of the account holder in LMEsword.

For more information on the legal structure, please see LME Notice 20/225.

How do we now lodge warrants with the new Depository Service enabled?

The new model means that the member will no longer be required to collect physical warrants from the London Agent, create a lodgement instruction or present the warrants to the Depository.

The Agent now receives an instruction (as they did previously) from the Warehouse Company to create the warrants. This instruction will be validated by the Agent, and as part of the new process a lodgement instruction will be created for the relevant Clearing Member.

Isn’t there going to be a delay when we withdraw warrants?

No, when a Member instructs for a withdrawal the London Agent will validate and authorise. The 200 warrant cap has also been removed from withdrawals. Once authorised a new print will be triggered for a bearer warrant at the Agent and within the LME Depository marking the warrant as ‘Cancelled’. This means that the LME Depository will not be required to physically locate the original print derived from the lodgement. A much more efficient model than the previous service.

So there is still a Bearer Warrant printed?

Yes, but only upon completion of a withdrawal instruction at the London Agent. Therefore we have removed the need for couriers to transfer bearer warrants between the Agent, the Member and the Depository.

What does this actually mean?

The LME can now move away from having physical warrants stored within a secure vault. This means that a number of process improvements can be achieved without upsetting the warrant creation or cancellation process between the Warehouse Company and their appointed London Agent.

Will the Agent be able to just put warrants in my account?

No, The Agent (outside of LMEsword) will send the Clearing Member additional details in relation to the lodgement and a Security Code. Once the Clearing Member enters the Security Code to LMEsword they will be able to download the warrants information. The Member can either Approve or Reject. If accepted, the warrants will be allocated to the nominated account within LMEsword.

Once the instruction is authorized, a print of the warrant will be created in the LME Depository (where required) which has no value outside of the LME.

Will there be long delays during periods of heightened activity for all jurisdictions?

No, the warrants will be lodged almost immediately for dematerialised jursisdictions, whilst for immbolised jurisdictions this may take slightly longer whilst the Depository Operations Team confirm the printing within LME. Instructions are no longer limited to batches of 200 so time to complete will be minutes as opposed to hours.

Can I still hold a warrant outside of LMEsword?

Yes, although we believe demand for this is low. The new electronic warranting model will require a lodgement followed by a withdrawal to remove a physical bearer document that would be printed by the London Agent. This provides greater control for the Member and a robust audit trail.

Have the LMEsword operating hours changed?

No, LMEsword is available 24/7, but only supported between 09:00 – 18:00 Monday to Friday.

Where can I find revised LMEsword Operating Procedures?

Members who currently require the new Operating Procedures or Technical Specification File should send a request to Post Trade Operations.

Who should I talk to at the LME with any further questions?

Please reach out to Post Trade Operations or your Relationship Manager who will be happy to assist.

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