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Summary
1 The Special Committee has decided to modify the lending guidance in respect of those with nickel positions by introducing new levels at which the holder(s) of dominant long positions are required to lend nickel. This modification shall apply in relation to nickel positions with effect from 0001hrs on 7 June 2007 until further notice. The application of the existing Lending Guidance in relation to all other metals is unaffected.
Existing Lending Guidance
2 Market Aberrations: The Way Forward was published by the Exchange in October 1998 as an attachment to LME notice 98/363 : A351 : W072. Paragraph 13.24 of the Market Aberrations document sets out the Lending Guidance that applies to the holders of dominant long positions in the LME metal markets (the “Lending Guidance”).
3 In respect of those holding dominant long positions in nickel, the Lending Guidance provides as follows:
(i) If at any time a member or client holds 50% or more of the warrants and/or cash today/cash positions in relation to stocks, he should be prepared to lend, if asked, at no more than a premium of 0.5% of the cash price for a day to reduce his position below 50%. After five successive days, he should be prepared to lend, if asked, at no more than a premium of 0.25% of the cash price for a day.
(ii) If at any time a member or client holds 80% or more of the warrants and/or cash today/cash positions in relation to stocks, he should be prepared to lend, if asked, at no more than a premium of 0.25% of the cash price for a day to reduce his position below 80%. After five successive days, the maximum premium would fall to 0.15%.
(iii) If at any time a member or client holds 90% or more of the warrants and/or cash today/cash positions in relation to stocks, he should be prepared to lend, if asked, at no more than the cash price to reduce his position below 90%.
Special Committee Action
4 After taking account of all of the relevant factors and consulting with the Financial Services Authority, the Special Committee has resolved to modify the Lending Guidance in circumstances where two or more members or clients each hold 25% or more of the warrants and/or cash today/cash positions in relation to nickel stocks as described below. This modification shall have effect from 0001hrs on 7 June 2007 until further notice.
Introduction of New Lending Requirements
5 If at any time two or more members or clients each hold 25% or more of the warrants and/or cash today/cash positions in relation to nickel stocks the existing Lending Guidance shall be modified as follows:
(a) Two Position Holders of 25% or more each
If at any time two members or clients each hold 25% or more of the warrants and/or cash today/cash positions in relation to nickel stocks:
(i) if either (or both) hold(s) 45% or more of the warrants and/or cash today/cash positions in relation to stocks, he/they should be prepared to lend, if asked, at no more than the cash price to reduce his position below 45%;
(ii) if either (or both) hold(s) 40% or more of the warrants and/or cash today/cash positions in relation to stocks, he/they should be prepared to lend, if asked, at no more than a premium of 0.25% of the cash price for a day to reduce his position below 40%; and
(iii) each should be prepared to lend, if asked, at no more than a premium of 0.5% of the cash price for a day to reduce his position below 25%.
(b) Three Position Holders of 25% or more each
If at any time three members or clients each hold 25% or more of the warrants and/or cash today/cash positions in relation to nickel stocks,
(i) if any one or more of the three holds 30% or more of the warrants and/or cash today/cash positions in relation to stocks, he/they should be prepared to lend, if asked, at no more than the cash price to reduce his position below 30%;
(ii) if any one or more of the three holds 26.66% or more of the warrants and/or cash today/cash positions in relation to stocks, he/they should be prepared to lend, if asked, at no more than a premium of 0.25% of the cash price for a day to reduce his position below 26.66%; and
(iii) each should be prepared to lend, if asked, at no more than a premium of 0.5% of the cash price for a day to reduce his position below 16.66%.
(c) Four Position Holders of 25% or more each
If at any time four members or clients each hold 25% or more of the warrants and/or cash today/cash positions in relation to nickel stocks:
(i) each should be prepared to lend, if asked, at no more than the cash price to reduce his position below 22.5%;
(ii) each should be prepared to lend, if asked, at no more than a premium of 0.25% of the cash price for a day to reduce his position below 20%; and
(iii) each should be prepared to lend, if asked, at no more than a premium of 0.5% of the cash price for a day to reduce his position below 12.5%.
(d) Five Position Holders of 25% or more each
If at any time five members or clients each hold 25% or more of the warrants and/or cash today/cash positions in relation to nickel stocks:
(i) each should be prepared to lend, if asked, at no more than the cash price to reduce his position below 18%;
(ii) each should be prepared to lend, if asked, at no more than a premium of 0.25% of the cash price for a day to reduce his position below 16%; and
(iii) each should be prepared to lend, if asked, at no more than a premium of 0.5% of the cash price for a day to reduce his position below 10%.
6 In determining the application of this Notice, the LME will aggregate the positions of a client across all brokers in calculating of dominant positions. Likewise, the LME will aggregate the positions of a member, its related group companies and its clients unless the firm can demonstrate that the positions were independent. Members are reminded of LME notice 01/122, dated 23 March 2001, which deals with arrangements where a party does not hold LME warrants but has effective control of them.
7 The attention of members is drawn to LME notice 05/009, dated 7 January 2005, which stipulates that the deadline for submitting large position reports (LPRs) to the Exchange is 8.30am. Members are reminded of the importance of submitting complete and accurate LPRs by this deadline. Failure to do so will be regarded as a serious matter.
8 Members or clients holding 25% or more of the warrants and/or cash today/cash positions in relation to nickel stocks on any day must contact LME market surveillance no later than 9.30am each day to seek guidance on whether any of the requirements set out in paragraph 5 above apply to it. Failure to do so will be regarded as a serious matter.
9 A summary of the modified nickel lending obligations is set out in the attached Appendix for reference purposes.
Appendix
Lending Guidance in relation to Nickel
Existing Lending Guidance
For all metals except nickel, the existing Lending Guidance will continue to apply as follows:
|
Each holder of 50% or more of warrants and/or cash today / cash positions (“WTC positions”)
|
Existing Lending Guidance Applies, i.e. 50% - <80% lend at ½% (changes after 5 days) |
Existing Lending Guidance Applies, i.e. 80% - <90% lend at ¼% (changes after 5 days) |
Existing Lending Guidance Applies, i.e. = or >90% lend at level |
Modified Lending Guidance in relation to Nickel
From 7 June 2007 until further notice, the Special Committee has modified the lending guidance in relation to nickel:
|
Only one holder of 50% or more of WTC positions
|
Existing Lending Guidance Applies, i.e. 50% - <80% lend at ½% (changes after 5 days) |
Existing Lending Guidance Applies, i.e. 80% - <90% lend at ¼% (changes after 5 days) |
Existing Lending Guidance Applies, i.e. = or >90% lend at level |
|
Two holders of 25% or more each of WTC positions |
25% - <40% lend at ½% |
40% - <45% lend at ¼% |
= or >45% lend at level |
|
Three holders of 25% or more each of WTC positions |
16.66% - <26.66% lend at ½% |
26.66% - <30% lend at ¼% |
= or >30% lend at level |
|
Four holders of 25% or more each of WTC positions |
12.5% - <20% lend at ½% |
20% - <22.5% lend at ¼% |
= or >22.5% lend at level |
|
Five holders of 25% or more each of WTC positions |
10% - <16% lend at ½% |
16% - <18% lend at ¼% |
= or >18% lend at level |
Note: this Appendix is for reference purposes only, and should not be relied upon without referring to the full Lending Guidance and the text of this Notice.
Background
- The LME is the world’s premier non-ferrous metals market and achieved volumes of 87 million lots in 2006, an increase of 10.6% on 2005 figures and equivalent to $8,100 billion in monetary terms.
- Trading at the LME takes place across three platforms: through open-outcry trading on the “Ring”; through an inter-office telephone market; and through the electronic trading platform of LME Select.
- The LME is a demutualised, shareholder-owned organisation that currently operates a model in which fees are kept to a minimum and all surpluses are rebated to shareholders.
