THE LONDON Metal Exchange yesterday outlined its package of warehouse reforms, which aim to cut queues and tackle market abuse.
“The LME has a duty to the entire metals community to run a fair and orderly market,” said chief executive Garry Jones, who joined the world’s largest metals exchange in August.
“We had a responsibility to examine concerns raised about lengthy warehousing queues, as these pose a range of issues in terms of price discovery and price convergence as well as the use of the market for effective hedging.”
The LME has been under intense pressure to reform its warehousing system after it was alleged that some warehouse owners were deliberately inflating waiting times to more than a year to deliver metals.
Warehouses charge rent on queued orders so will make larger profits the longer the metals are stored, while holding back supplies will raise prices.
Under the new changes, which are mostly set to be implemented by 1 April 2014, warehouses with a backlog of metal deliveries of over 50 days will be required to load out stocks before taking in any new supplies. The current regulations stipulate 100 days.
The LME is also looking to increase the scope of its powers so that it can cap rents in queues, which it is currently unable to do on the grounds that it is anti-competitive. “We are not going to hold back from the legal process,” Jones told a press conference at the LME’s headquarters in London.
Other new measures include “enhanced investigation and action powers against abusive queues”, although no further detail was given.
“We see these measures as a first step towards strengthening LME’s warehousing arrangements and increasing the transparency of its market,” said financial watchdog the FCA who engaged with the LME on the changes.