- Confirmation that Official Prices will be determined in the Ring from 6 September, while Closing Prices remain electronically discovered
- Eight of the nine Category 1 members have indicated their support of Official Prices in the Ring
- New 12-month fee rebate programme introduced to support Category 1 members in adapting their business models
- All Ring sessions, except for the Official Pricing session, made voluntary in order to provide greater trading flexibility for Category 1 member teams, in accordance with consultation feedback
- Collaborative ongoing discussions with the Closing Prices Working Group, to further evolve the electronic closing prices methodology
The London Metal Exchange (LME) is pleased to announce that, following the results of its consultation on a proposed split pricing structure, LME Official Prices will be discovered on the Ring while Closing Prices will continue to be determined electronically. This optimal structure caters for both smaller physical customers – who use Official Prices in their contracts and overall prefer these to be determined in the Ring – as well as financial and larger physical users, who focus primarily on Closing Prices and generally favour electronically derived pricing.
The consultation on a split pricing approach was launched in June following the results of a discussion paper process on the LME’s market structure, which included the decision to determine Closing Prices electronically on a permanent basis. The LME received 12 consultation responses, mostly from Category 1 Ring-dealing members, which showed broad support for the specific proposal of determining Official Prices in the Ring from 6 September, Covid-19 restrictions permitting.
Matthew Chamberlain, LME CEO, commented: “We’d like to thank all those who took the time to respond to the consultation. While fully acknowledging that many Category 1 members would have preferred Closing Prices to also return to Ring-based price discovery, we’re pleased with the level of support shown for maintaining Official Prices in the Ring, and look forward to welcoming members’ Ring teams back in September.
“We believe this split pricing model is the best outcome for the market as a whole, allowing increased participation and transparency in the Closing Price process, while enabling different user groups to access and take part in pricing in the way that best suits their business.”
The LME fully recognises that each member will need to make their own determination as to their preferred business model, and that this may result in changes to membership status. The LME will seek to support all members in any such adjustments which they may wish to make. However, the LME is pleased to note that eight of the nine Category 1 members responded to the consultation indicating their support for Official Price discovery to return to the Ring on 6 September.
In order to assist Category 1 members in adapting their business models to best serve their clients in line with the new pricing structure, the LME will also introduce a Ring transition rebate programme, effective from 6 September. This programme, which will run for 12 months, enables Category 1 members to transact electronic trades during the Closing Price discovery period at the discounted Ring fee.
On the basis of eight Category 1 members indicating their support for Ring based Official Prices, the LME anticipates that Official Prices will be discovered in the Ring from 6 September. However, in order to provide market certainty, and having considered consultation feedback, the LME will also introduce its proposed trigger conditions to move Official Price determination to the electronic venue should there be a significant change in liquidity.
Additionally, in line with respondents’ views, participation in Ring sessions – with the exception of the second Ring of the morning (the Official Prices session) – will become voluntary in order to allow Ring teams the flexibility to trade both electronically and face-to-face as best suits their business and clients’ needs.
Finally, the LME is pleased to note the continued progress of the Closing Prices Working Group (CPWG). The CPWG has been constituted in order to help inform the LME regarding potential evolution to the Closing Price methodology, and ensure that the electronic Closing Prices best serve the needs of the market
Gay Huey Evans CBE, LME Chairman, concluded: “I would like to extend my personal thanks to our Category 1 members for their constructive feedback over the course of this consultation. We hope that today’s announcements – including the rebate programme, flexible attendance at certain sessions, and a measured and pragmatic approach to evolving the electronic Closing Prices methodology – will allow our Ring dealers to continue to provide the very best service to their customers throughout the trading day.”
“Whether sitting in the Ring for Official Prices, or trading electronically from their Ring-side offices for Closing Prices, we are excited to see the Category 1 community return to Finsbury Square in September.”
Notes to editors
• The relevant LME Rulebook changes take effect from 9 August 2021.
• The full consultation results along with the LME’s Discussion Paper and outcomes can be found on our website.