Disruption events

In March 2022 the LME introduced daily price limits on all of its base metals futures (see notices 22/064, 22/067 and 22/080).

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 also introduced a related disruption event framework.

Disruption event 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 by notice 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.

Full details relating to the disruption event framework is set out in notice 22/092.

Contact us

For further information please get in touch.

Contact us