LME And LME Clear Announce 2017 Fee Schedules

Trading and clearing fees unchanged, retaining fee reductions for short-dated carries and position transfer caps
LME Clear warrants as collateral and compression service fees significantly reduced
LME base metals usage licence fee waived for physical market participants

The London Metal Exchange (LME) and LME Clear today announce their 2017 fee schedules. Trading and clearing fees will remain unchanged, including the continuation of fee discounts for short-dated carries and position transfer caps as announced in August 2016. In addition, LME Clear will reduce fees for key services introduced in 2015 and the LME will introduce a waiver for the base metals usage licence fee for physical market participants.

LME Clear will implement a fee reduction for its warrants as collateral and compression services.

“Following discussions with our membership and in line with the recent rebalancing of Exchange fees that took effect on 1 September, LME Clear is pleased to announce this significant reduction in charges for its trade compression and warrants as collateral service,” said Adrian Farnham, LME Clear Chief Executive.

Trade compression, which allows members to reduce the notional value of their positions and simplify their portfolio management, will see charges fall by two thirds (from $0.03 to $0.01 per lot compressed). Accommodation charges to use LME warrants as collateral, which provides the LME market with a unique source of protection against risk, will also drop from 50bps to 25bps per year in 2017, with an additional annual cap of $3,000 per member for any related LMEsword fees.

Bradley Campbell, Global Head of Base Metals Trading at Standard Chartered, commented: “The reduction in fees for using warrants as collateral will allow us to make much greater use of this unique service, which brings flexibility and cost efficiencies to collateral management.”

The LME is also introducing a waiver whereby physical market users will not be charged under its base metals market data usage licence. The usage licence, which came into effect on 4 April 2016, was targeted at those users of LME prices who do not contribute to the formation of the prices, either as members or as users of LME client contracts. The LME continues to believe that it is appropriate for financial firms who embed LME prices into structured products to pay for a usage licence. However, following significant industry engagement, the LME also understands that many industrial players, even if they do not directly hedge on the Exchange, materially contribute to the value of LME prices by using them in their supply chains and downstream contracts. Accordingly, such physical users will not be asked to pay for the usage of LME base metals prices in their physical contracts.

“We are grateful to the physical market for sharing their views on this topic, and to our members for providing a channel for that feedback,” said Matthew Chamberlain, COO of the LME. “The LME is privileged to enjoy a unique relationship with the global physical base metals market, and we believe that this waiver appropriately recognises the strong bond between the Exchange and the industry which it serves.”

“We welcome today’s news that the LME will waive the usage licence charge for physical base metals participants,” said Mark Loveitt, President of the International Wrought Copper Council. “We have engaged extensively with the LME over the course of the past eight months, and believe this represents a highly positive outcome for the global base metals industry.”

All new charges will take effect from 1 January 2017.

Background

Since the launch of the services in November 2015, LME Clear has compressed almost half a million lots totalling $21 billion in notional value, and has received approximately 5,000 warrants as collateral with value totalling close to $217 million.
Further details of the LME 2017 fee schedule can be found in Notice 16/387 : A380 : W119.
Further details of the LME Clear 2017 fee schedule can be found in Notice 16-044.
Further details of the physical market exemption from payment of the LME usage licence for base metals can be found in Notice 16/388 : A381.
A physical market usage licence will remain payable for the LBMA Platinum and Palladium Prices, given that the LME does not charge participants for trading on this platform, and (in common with similar reference prices), a charge of this nature was hence a key element of the transition from the previous phone-based auction process.