London Metal Exchange
Set up in 1877 to provide a venue for trade conducted among metal merchants in London, the LME was sold in 2012 to the operator of the Hong Kong stock exchange. In 2013, it was a defendant in lawsuits accusing Goldman Sachs, JP Morgan and Glencore-Xstrata of rigging the aluminium market.
London Metal Exchange plans reforms to cut long warehouse queues
The London Metal Exchange, the world's largest metal bourse wholly owned by Hong Kong Exchanges and Clearing, will carry out a package of reforms in April to solve warehouse congestion.
The LME yesterday said its directors had approved changes to its procedures designed to cut queues at its warehouses. This came after a three-month consultation with the global metals industry in July.
"As the world's leading base metals exchange, the LME has a duty to the entire metals community to run a fair and orderly market," said LME chief Garry Jones.
"We have a responsibility to examine concerns raised about lengthy warehousing queues, as these pose a range of issues in terms of price discovery and price convergence as well as the use of the market for effective hedging."
HKEx in December last year spent £1.39 billion (HK$17.3 billion) to buy the LME in a bid to expand into commodities but the deal came at a time when metal users were complaining of malfunctions and long queues for deliveries. The reforms, the largest change to the LME after the HKEx takeover, is aimed at addressing users' discontent and enhancing warehouses efficiency.
The reforms now target queues of more than 50 days, instead of 100 days as initially proposed in July.
Under the reforms to be implemented from April next year, the LME will investigate and act to prevent warehouse companies having policies that lead to the formation of queues.
The proposal operates by measuring all of the metal, such as copper and aluminium, loaded into a warehouse over a three-month period. If there is a queue of more than 50 days, the warehouse would be expected to deliver out additional metal based on a formula, the LME said.
Under such a formula, a warehouse now required to deliver out a daily tonnage of 3,000 tonnes would, under the proposed reform, need to load out at least 1,500 tonnes per day more than it loads in.
The LME will also enhance its existing physical network in a number of ways, including commissioning a full external logistical review of its warehousing operations.
In addition, the LME will create a new physical market committee to enhance representation in the LME's governance structures. The committee will review LME's warehousing system every six months.
The LME also will inform the market every year once it has received third-party audits carried out on warehouse operators to identify any general issues. It also plans to provide new delay data per warehouse.