The London Metal Exchange (LME) has today issued a white paper outlining a package of measures designed to modernise the LME’s market structure, boost transparency and increase price competition, while protecting the unique features of its market that serve the physical metal communities.
To increase accessible liquidity on the LME’s electronic market (LMEselect) – particularly on the monthly dates, where many market participants wish to have exposure – the LME will introduce industry-standard block limit rules. This means that small-sized trades involving liquid dates (each monthly date out to one year) and for the most liquid metals (aluminium, copper, zinc, nickel and lead) will have to be executed on-screen.
Crucially, to ensure that key physical market trading practices remain unaffected by the new rules, the block thresholds will not apply to daily prompt dates, so member provision of bespoke averaging for physical clients will not be impacted.
These rules also support members in continuing to agree small trades bilaterally with their clients, provided that liquidity is shown on LMEselect for visibility.
To support the implementation of block rules, the LME will also introduce a liquidity provider programme to encourage on-screen trading in certain liquid instruments at the front end of the curve. Additionally, to further increase transparency, the LME will ensure that all trades (in the liquid dates) agreed in the interoffice market – regardless of their size – are booked into LME systems and published on external market data feeds.
On 19 August, the LME made its new trading platform available in the production environment for member testing, as one of the key steps prior to launch. This system, LMEselect 10, provides a deterministic and low latency system that offers improved functionality for electronic traders, such as the ability to enter “good-till-cancelled” (GTC) or “persistent” order types.
Additional functionality will also be rolled out to further support this package of measures, such as recalibrated tick sizes to encourage positive trading behaviours from systematic traders.
To ensure a level playing field and consistent transparency between exchange-traded and OTC markets, the LME intends to apply similar block rule requirements to OTC contracts that reference LME prices and closely align to monthly exchange contracts (or the spreads between these). This will mitigate the risk of volume being incentivised away from the transparent central liquidity pool.
The measures announced in the white paper will be formally consulted on where appropriate over the next 12 months, with the aim of implementing the package of measures in the second half of 2025.
