LME issues discussion paper on electronic warranting proposal

The London Metal Exchange (LME) today issued a market-wide discussion paper on its proposal to introduce an electronic warranting process – the process that enables customers to make and take delivery of metal.

Following initial supportive feedback from members, the LME proposes to streamline the warrant lodgement and withdrawal process by adopting a new dematerialised warranting structure. This would 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.

“We believe warrant dematerialisation will be highly beneficial for our users and for the LME. By replacing the physical transferral process with an electronic one, we reduce administrative burden and eliminate operational risk in warrant lodgement and withdrawal,” commented Matthew Chamberlain, LME Chief Executive.

“Having direct oversight of this new depository service also provides us with more control over future development, as well as in business continuity scenarios – such as the one we’re experiencing currently.”

Given the global reach of the LME’s metal storage network, the proposed change to the legal structure associated with the electronification of the depository function is highly complex and has involved the input of external counsel from all 14 of the jurisdictions where LME warehouses operate. As a result of this process, the LME has proposed a legal structure that caters for the local jurisdictions of all its warehouse locations.

Under the proposed structure, warrants will either be fully electronic (which will be the case for most jurisdictions), or “immobilised” – for those jurisdictions where a paper warrant is still legally required and produced, but the warrant itself is printed by the LME and will only remain valid while inside the LME’s depository.

The discussion paper, which closes on 10 July 2020, seeks views from market participants on both the operational and legal implications of this proposal. The LME aims to launch the proposed warrant depository function by the end of October 2020.

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Notes to editors
• The full discussion paper can be accessed on our website.
• An LME warrant is a physical document representing an entitlement to LME-approved metal.
• The LME operates a secure electronic transfer of ownership system for LME warrants, called LMEsword. However, in order to make or take delivery of metal, paper warrants are currently required to be lodged and withdrawn from the secure central warrant depository in London.