Where a metal is trading at or around a daily price limit during the period in which the Official Prices or Closing Prices are being determined, it may become difficult for traders to hedge their exposure to these prices as normal. As such, the LME introduced the Disruption Event Framework.
Disruption Event Framework
Disruption Event Framework (PDF)
The Disruption Event Framework was introduced by the LME in March 2022 following the implementation of daily price limits (“DPLs”) pursuant to LME Decision Notice 24/134 of 2 April 2024.
The Framework establishes a consistent and transparent approach for identifying, declaring and managing circumstances in which market disruptions affect the determination of the Official Prices or Closing Prices. It sets out how disrupted prices are treated for pricing, settlement, margining and related calculations to support orderly market operation and pricing integrity.
This Framework should be read in conjunction with the relevant pricing methodologies and the Daily Price Limit Multiple Day Framework (as amended from time to time) (the “DPL MD Framework”).
Where the establishment of an Official Price or a Closing Price has been affected by a daily price limit, or a suspension of trading, the LME will typically deem this to amount to a disruption event.
The LME has clarified how it will use any prices that are affected by disruption events in relation to the margining of LME contracts and settlement of physical LME contracts.
The LME has also clarified by notice how it will use any prices within its own averaging contracts (monthly average futures and traded average price options) to help ensure that participants can appropriately hedge their exposure.
Where participants have OTC contracts on the basis of LME prices, they should assess their own contractual documentation to determine how a disruption event will affect their contract.
Disruption Events
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