The Daily Price Limit (“DPL”) Multiple Day Framework outlines the actions the LME will take in relation to contracts impacted by DPLs (as defined in LME Notice 24/134 of 2 April 2024) on multiple days in the same direction.
Daily Price Limit Multiple Day Framework (PDF)
It also sets out the factors the LME may take into account when considering whether to halt trading in an affected Contract, including trading activity, liquidity, price movements and volatility in equivalent or related products traded on linked exchanges, and the interaction between those products and the relevant Contract.
When does the DPL Multiple Day Framework apply?
The DPL Multiple Day Framework typically applies when a contract has been impacted by its respective DPL, in the same direction, for multiple days in a row. The LME will automatically suspend the market for that particular metal at the end of the third business day. The LME may also consider suspending the market for Cash Settled Futures linked products earlier if deemed necessary and at the sole discretion of the LME.
This framework applies to the LME Contracts that have DPLs in place (which includes all physically deliverable contracts, plus cash-settled LME Cobalt (Fastmarkets MB) and LME Steel HRC Shanghai).
Find out more about volatility controls, price limits and price bands
How does the framework work?
The framework is in effect when the LME determines that a Day 1 “Qualifying Event” has occurred. A Qualifying Event is where the DPL has impacted Closing Prices. The LME shall notify the market of such an event via Notice.
Similarly, if the same contract is impacted by a price move in the same direction for a second consecutive business day, the LME will publish a notice detailing a Day 2 “Qualifying Event”.
Suspension Event
If the same contract is impacted by a price move in the same direction for a third consecutive business day, the LME shall notify the market of a Day 3 Qualifying Event (Suspension Event) which means that the market will automatically be suspended on Day 4.
A Suspension Event under the Framework can only be declared on Day 3, however it should be noted that this does not limit any other powers of the LME to suspend trading on any execution venue under the LME Rulebook.
What happens during a Suspension Event?
If a Suspension Event occurs, it will apply to all futures and options on all venues for the relevant metal that triggered the event. The LME will suspend all contracts in the affected metal, and it will not seek to suspend trading in specific instruments only.
Illustrative example
The figure below is an illustration of a potential Suspension Event under the DPL Multiple Day Framework, following a price move upwards for three consecutive business days which, in this example, reaches the DPL on each day.
The market will be notified about the different events at the end of Day 1, Day 2 and Day 3, and on Day 4, the market will be automatically suspended.
Re-opening the market
In the event a Suspension Event is triggered under the DPL Multiple Day Framework, the LME will decide, at its sole discretion, whether to re-open the market for that relevant metal on Day 4.
The LME shall inform market participants of any such decision via Notice, and will endeavour to re-open the market for that relevant metal as soon as is reasonably practicable.
Once the market is re-opened, the DPL Multiple Day Framework resets such that if that same day, the DPL is reached for any metal, this would be considered a Day 1 Qualifying Event as part of the DPL Multiple Day Framework.
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