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The London Metal Exchange (LME) is today opening a two-week consultation to invite comments on possible anti-abuse provisions that would govern the application of the Exchange’s proposed queue-based rent capping (QBRC) rules.
On 1 July 2015, the LME sought feedback on a proposal to introduce a cap on the rent charged for metal in a queue. It suggested that, from 1 May 2016, warehouses that failed to deliver out stored metal within specified periods would be required to discount the rent charged to the affected metal owners. The consultation closed on 17 August 2015.
“The LME has always highlighted the potential for QBRC to be used by metal owners to achieve free storage at the expense of warehouses. In the feedback to the consultation, a number of respondents felt this was a significant concern, requiring a specific anti-abuse provision” says Matthew Chamberlain, Head of Business Development. "We want the market to know we are listening to these concerns, and we certainly do not want QBRC to be a source of abuse. The launch of this follow-up consultation reflects this.”
The LME is aware that it could be possible for a metal owner to request delivery of a large amount of metal at once, and thus take advantage of QBRC to create load-out queues, which would allow them to benefit from the rent discounts applicable under QBRC.
To counter this, the LME proposes an anti-abuse mechanism that would stagger the dates at which the rent caps would come into effect to more accurately reflect the load-out schedule agreed by the warehouse company and the metal owner.
The LME has given careful consideration to the results of its July consultation, and is currently minded to proceed with the implementation of QBRC, along with the increase to the minimum load-out rate for metal stored in LME-approved warehouses (LORI) also proposed in that consultation. However, a final decision regarding these measures will only be taken once the LME has finalised its analysis, including whether or not it is possible to adopt appropriate anti-abuse measures.
The time required for the new consultation means it would no longer possible to achieve the LORI implementation date of 14 December 2015 outlined in the July consultation. The LME now proposes a LORI start date of 1 March 2016.
