London Metal Exchange introduces position limits

16 September, AtoZForex, Lagos – The London metal exchange (LME) has set plans on motion to introduce position limits. The London metal exchange stated that the use of position limits may extend beyond aluminium premium contracts if upcoming legislation requires of such an adjustment.

The London metal exchange (LME) is the largest and oldest market for industrial metals in the world and it has developed its own unique system of controlling the impact of large positions. However, it will not be workable for its new aluminum premium contract, which is set for launching by the 23rd of November 2015, according to the LME.

The London metal Exchange's (LME) existing "Lending Guidance" stated that the holder of a dominant position must sell part of its short-term contracts at fixed prices to other participants, if the participants are in need of them. However, the exchange quickly noted that, since the new aluminium premium contract will have monthly prompt dates instead of weekly ones, then the lending guidance would be far from being useful due to the prompt dates.

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MiFID II changes the game!

The London metal exchange stated further: "it is anticipated that the position limit regime will only apply in respect of trading premium contracts". The London metal exchange (LME) further said, the power to introduce position limits is drafted as a general power... given that further position management regimes may be required by MiFID II".

The European Union's market in financial instruments Directive (MiFID) up till now has no place for the commodity traders. Even so, the MiFID II is set to interpret commodity traders with effect from January 2017.

The London metal exchange (LME)  articulated that it was launching a consultation, and October 15 had been set as deadline to get a response as regards the proposal for position limits, as well as other changes to its rule book. The LME is a subsidiary of Hong Kong exchanges and clearing Ltd has through its action left the door open to end market squeezes initially on its new aluminum premium contract.

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