Closing Price methodology evolution

The LME recently announced (in notice 23/168), that in early 2024 we are evolving the way we calculate Closing Prices, by expanding the use of volume-weighted average prices (VWAPs) for our most liquid contracts.

The evolution follows a market-wide consultation (set out in notice 23/091) and is part of our Action Plan to strengthen and modernise our markets.

The changes are designed to make the methodology for Closing Prices more:

  • Deterministic
  • Transparent
  • Representative
  • Objective

Current (pre-2024) methodology

Currently, Closing Prices are determined using a VWAP for the most liquid 3-month contract, and a “last price” methodology (combined with expert judgment from the LME’s Trading Operations Team) for all other prompt dates.

New methodology

The new methodology (being introduced via a phased implementation from January 2024) will extend the VWAP methodology to five additional prompt dates (CASH and the first four 3rd Wednesday monthly dates), for aluminium, copper, zinc, lead and nickel.

The VWAP methodology will calculate the average price of trades over the five-minute pricing window according to the volume of contracts traded. Therefore, the Closing Price will represent all of the trades that take place over the pricing window, with each trade’s influence on the price being proportionate to its size. If the five-lot minimum volume requirement (MVR) is not met, the price will be calculated instead using a time-weighted average price (TWAP) over the pricing window.

Phased implementation

The phased implementation starts on 22 January 2024 (for aluminium and lead) and 18 March 2024 for all other metals (copper, zinc and nickel).

For further information please contact tradingoperations@lme.com.