A ‘prompt date’ is the settlement date of a future or forward contract. This term is synonymous with the term ‘value date’ commonly used in the OTC precious metals market.
Self-trades, sometimes called “green trades”, means, broadly:
a. two clients of the same member in LMEselect trading with each other legitimately through order routing on the API; or
b. an in house trader trading with an in-house trader (both of the same member) on the API; or
c. an in-house trader trading with a client through order routing on the API.
The current approach for LME base metals is that such transactions are suppressed in LMEselect so that they do not flow into LMEsmart. This suppression functionality is not available to members for LMEprecious. The LME is aware that there are a number of legitimate trading scenarios whereby a member may take both sides of a trade in LMEselect, and so it would not be appropriate to restrict such activity. Where such activity does take place, members should be aware that the resulting transactions will flow automatically from LMEselect to LMEsmart, and from there to LMEmercury, where the transaction will be cleared and published to the market. Members are reminded, however, to ensure that they have appropriate controls and procedures in place to prevent any inappropriate self-matching of orders in LMEselect.Note – the approach for LME base metals is currently under review and further communications may be made on this in due course.
The margin values for precious and existing base contracts will be contained in the same SPAN file.
Five banks currently offer unallocated loco London precious metal accounts. These are:
- HSBC Bank
- ICBC Standard Bank
- JP Morgan
Relevant contact details can be found at LPMCL’s website. LPMCL is the organisation that coordinates the London unallocated delivery process.
An OTC gold derivative contract will not automatically become subject to the reporting requirements under EMIR because LMEprecious contracts are available for trading on the LME (a regulated market).
An OTC derivative contract is reportable under Article 9 of EMIR if it falls within the definition of "derivative contract" under the Markets in Financial Instruments Directive ("MiFID") or, from 2018, MiFID II. A gold derivative could fall within the scope of the current MiFID definition if it: (i) can be physically settled; (ii) is not traded on a regulated market, MTF or OTF; (iii) is not for commercial purposes; and (iv) has the characteristics of other derivative instruments (such that it would be a financial instrument falling under category C7 of the Annex to MiFID). Under MiFID, an OTC derivative is currently able to fall within the C7 category if it is "expressly stated" to be equivalent to an exchange-traded contract. Consequently, an OTC gold contract could currently be reportable under EMIR if it is expressly stated to be equivalent to an LMEprecious contract.
However, when MiFID II is implemented in 2018, a physically settling OTC commodity derivative will be capable of being a derivative contract under category C7 (and therefore reportable under EMIR) if it is "equivalent to a contract traded on a regulated market". It will no longer be necessary for such equivalence to be "expressly stated". In order to assess equivalence, it will instead be necessary to consider the features of the OTC contract, including the price, the lot, the delivery date and other contractual terms, including the quality of the underlying gold and the place of delivery. An OTC contract that is closely matched to the features of an LMEprecious contract could therefore be capable of being treated as a reportable C7 contract, on the basis that it would be equivalent to an exchange-traded contract. However, an OTC contract that differs in material respects from the LMEprecious contract ought not to be treated as a C7 contract simply because LMEprecious contracts are available for trading on the LME.
For example, all LMEprecious contracts use LME prices for the purposes of settlement; an OTC gold contract that uses a different settlement price would therefore operate differently from an LMEprecious contract, with different results for those trading in it. Given that price is an important factor in determining equivalence, such a differently priced contract should be materially different from, and therefore unlikely to be equivalent to, the LMEprecious contract. A firm that is considering whether a particular contract is reportable under EMIR will need to consider whether there may be other reasons why the contract might be reportable, taking into account all the circumstances relevant to that contract.
You should note, in addition to the disclaimer on this website (which also apply to this answer), that the position described in this answer reflects the LME's understanding of the relevant regulatory requirements as at September 2017. It is not legal or compliance advice and the LME does not intend or expect reliance to be placed upon it by any person. Firms should take their own legal advice as to the applicability of regulatory requirements (including the EMIR reporting requirements) to their transactions and business activities.