As the LME is a regulated exchange, onboarding for LMEshield applies the same standards as onboarding for LME membership, although does not require purchase of LME ‘B shares’. Before the onboarding process can begin, prospective users of LMEshield will first need to sign a non-disclosure agreement. Each company will then undergo an application process prior to being onboarded as an LMEshield user; either as a warehouse operator, commodity trader and financer. Once their application is successful, LMEshield members must indicate which users they wish to have enabled in the system.

There is no fee to join LMEshield.

No. LMEshield participants are onboarded separately by our Client Advisory team and LME membership is not a requirement. Unlike LMEsword, LMEshield allows users to operate their own account rather then through intermediaries, permitting only the user to have oversight of their stock holding information.

Yes. The system has been purpose built to provide receipting for global off-warrant commodities. LMEshield has the means to receipt more than just LME grade brands and metals as the material stored on LMEshield is not being delivered against LME contracts. Therefore, the scope for storing different types of metals and other commodities is far wider on LMEshield. All the eligible commodities are available here.

Yes. Material held on LMEshield is not being used to physically settle LME contracts and this means a wider variety of specifications of metal can be held on the LMEshield system. However, if the material held on LMEshield does not meet LMEsword requirements, this material cannot then be warranted. Quality and brand of material held on LMEshield receipt is determined by both the warehouse and metal owner bilaterally. LMEshield allows for Certificates of Analysis to be attached to, and transferred with, the LMEshield receipt. The current eligible commodities are listed here.

Early users of LMEshield can enjoy immediate commercial benefits of de-risked receipts. The LME brings 140 years of warehouse network management and can help LMEshield participants save on compliance, inspection, due diligence, monitoring, processing, couriering and audit costs. Furthermore, the robust legal framework around receipt transfer can bring additional credit saving costs allowing LMEshield participants to focus on their gross revenue line from day one.

Yes. As well as being available in existing LMEsword jurisdictions, which are all areas of metal net-consumption, LMEshield is also approved in some jurisdictions that are areas of net-production. This allows LMEshield to operate in additional jurisdictions as well as existing LMEsword locations. A list of eligible jurisdictions for LMEshield is available here.

The LME has conducted extensive legal analysis, including opinions from local counsel, and approved all jurisdictions in which LMEshield is available. If requested, the LMEshield team are happy to arrange conversations between the LME Legal team and prospective users. However, the complete jurisdictional analysis the LME received from external counsel is legally privileged. It is important to note that any information received when talking to our legal team is not exhaustive and should not be used in place of seeking independent legal advice on the LME User Terms and Conditions and use of the LMEshield system.

Yes. The LMEshield team are designing new functionality that will allow for a link between LMEshield and LMEsword and will ensure moving material on and off LME warrant is as seamless as possible. In the meantime, the process of converting an LMEshield receipt to an LME warrant is more efficient compared with paper receipts requiring physical couriering.

Yes. Any material that is suitable for LMEsword can be placed on LMEshield receipt.

No. The LME does not publish inventory held on LMEshield. Inventories can only be tracked by the LME compliance and administrative teams, operating behind an information barrier. There will be no access for the commercial teams within the LME to view the tracked inventories captured by the LMEshield system.

Warehouse companies wishing to have their facilities LMEshield listed will need to have them inspected by the LME’s Physical Operations team - the same as with LMEsword. LMEshield commodities on LMEshield receipts must be clearly labelled in order to identify the underlying commodity relating to the receipt. The LME also has the right to undertake periodic inspections and each warehouse must complete a 100% stock count of all commodities listed on LMEshield at least once a year, which will be conducted by approved third party inspectors.

LMEshield is founded in the LME’s extensive experience overseeing a global warehousing network and promotes a minimum global standard for storage of commodities in the off-warrant market, including brands and metals that may be placed on LME warrant. Users of LMEshield receipts know the warehouse storing their metal meets stringent criteria overseen by the LME, which reduces the risk of fraud on financed material helping to enable lending against a commodity lying outside of the current network of LME listed warehouses.

Certain jurisdictions around the world still have a legal requirement for paper receipts rendering most electronic receipting systems incompatible in those locations. Furthermore, under English law, it is not possible to create a pledge of an intangible asset so a physical piece of paper is required. However, in the case of LMEshield, the paper receipts are kept immobilised in a depository at the LME. The paper receipts have no value outside the depository: if a paper receipt were removed from the LME depository and presented at a warehouse it would be legally invalid. Load out of metal for an LMEshield receipt can only be done securely through the LMEshield electronic system. Therefore, the system of immobilised receipts is, in practice, as secure and effective as a full dematerialisation.

Warehouse attornment (a formal transfer) is a crucial aspect of LMEshield as the system provides efficiency of transfer whilst at the same time mitigating against legal ownership challenges. The LMEshield depository is authorised by each warehouse company using the system to make attornment for and on behalf of the warehouse company. Each warehouse company must agree to this before they are given access to the LMEshield system. In this way, there is legal confirmation on behalf of the warehouse for every transfer of ownership that takes place on LMEshield.

As every LMEshield receipt has the same format and legal foundation, there is a standardisation of warehouse receipts across multiple warehouse locations, companies and jurisdictions. This allows users of LMEshield receipts to have a greater level of confidence, even when using LMEshield receipts in warehouse companies and locations they may not have used before.

Additionally, LMEshield can help to reduce couriering costs that businesses incur from delivering paper receipts as the system uses electronic receipt transfer, with the paper receipt being immobilised in the LME depository.

Yes. LMEshield warehouse receipts are documents of possession based on the same legal construct as LME warrants held in LMEsword (the bailment chain under English law). Holders of LMEshield receipts consequently have the ability to deliver possession to another party.

As noted above, the immobilised paper receipts held in the depository have no value outside the depository. Load out of metal for an LMEshield receipt can only be done securely through the LMEshield electronic system. Therefore, there should be no benefit to a fraudulent counterparty to create counterfeit LMEshield receipts. Moreover, if there is a dispute over the validity of an electronic receipt in LMEshield, the LME can cross-check these against the printed paper receipt in its depository. Receipt numbers are generated in succession meaning that the highest numbered receipt is the most recent one to have been printed by the LMEshield system. Therefore, the electronic receipt with the corresponding receipt number will be deemed to be the valid electronic version.

Instead of a need for a bank to guarantee a buyer’s payment to a seller through an LC structure, LMEshield’s new payment service functionality will allow for funds to be transferred through the LMEshield system via an LMEshield LME Clear account, which will unlock the transfer of the receipts once funds are received and transferred to the seller. In this way, sellers can be sure of payment and buyers can be sure of gaining possession of their receipts. For those who still want to use an LC, it is also possible to transfer the LMEshield receipt using the irrevocable transfer function on LMEshield and to use a printed copy of the LMEshield receipt in the LC pack.

The LME is exploring Blockchain functionality and its potential uses in LMEshield.

LMEshield should reduce the Loss Given Default (LGD) by reducing the risk of fraud and supporting the confidence around constructive possession. Moreover, interoperability between LMEsword and LMEshield facilitates quick liquidation of the pledged collateral, further reducing the effective LGD.