The London Metal Exchange (LME) expects its in-house clearer LMEClear to charge members fees similar to provider LCH.Clearnet's just-tripled charges for clearing LME trades.
Brokers will pass these LME charges on to clients next year because rules that are brought in to stop trading practices seen as contributing to the 2008 global financial crisis mean they will no longer be allowed to net client positions within their own accounts.
LCH.Clearnet tripled fees for clearing LME trades to 15 pence (HK$1.80) per lot from five pence from June 1.
"It's still far too early to say, but by early summer next year, we'll know where we'll set the tariffs, and I don't think they'll be higher than current rates," said Trevor Spanner, the LME's managing director of post-trade services, who is in charge of setting up LMEClear.
Hong Kong Exchanges and Clearing (HKEx) bought the LME in December for US$2.2 billion. HKEx is under pressure to show a return on its acquisition and is eyeing LMEClear for returns.
Spanner hopes LMEClear will quickly expand its clearing services to commodities such as gold and silver and eventually to over-the-counter (OTC) metals products.
"There's a sizeable business at the moment that members do OTC, and it's going to get much more expensive to do that with new regulations," he said. "We're looking at designing [OTC] contracts that could at some point give members the option to route them into LMEClear for clearing."
The OTC market for contracts such as swaps is worth an estimated US$600 trillion globally. It was widely implicated in 2008 when the credit default swap market imploded.