LONDON LCH.Clearnet has
increased the registration fee for London Metal Exchange trades
to 15 pence per lot (23 cents) from 5 pence (8 cents), it
announced May 15.
The hike in fees at the
clearinghouse comes as it "continues to make significant
investments to finance increasing risk capital, achieve
regulatory compliance and provide enhanced risk-management
services," the clearinghouse said in a notice to members.
"LCH has said it has incurred an
awful lot of cost associated with regulation and reckons it has
about 18 months to recoup it, before LME Clear (the LMEs
clearinghouse) is launched," a source at a major brokerage firm
The new fee goes into effect
June 1 and will affect all LME clearing members, the
"I am shocked and disappointed
about the considerable increase in fees, and the very short
notice we have received before implementation," Michael
Overlander, chief executive officer of Sucden Financial,
"This is going to aggravate the
broking industry, which is working very hard to keep costs
down," the head of one brokerage firm said.
All trades will become more
expensive as a result of the clearinghouses move,
including those that are an integral part of the LMEs
date system, such as the rolling of nearby positions or between
specific dates, brokers said.
The LCH.Clearnet fee component
of taking a 1,000-lot position will increase to $189, from $63
previously, meaning that rolling a position of that size will
cost $378, one market source said.
"We sometimes roll positions for
two weeks to get to a specific date. You can see how the cost
of that will mount up, and also how it will cost brokers more,
if they have to execute two or three trades to get out of
positions for their clients," he said.
He noted that in other markets,
it is customary for exchange and clearing fees to be passed
straight through to customers.
The short notice that clearing
members received about the increase in feeswhich took the
market back to last year, when the LME itself introduced a fee
on cross-tradeswas greeted with displeasure.
"There is a certain
déjà vu about this going back to the LME fee
increase. At least with that, there was ultimately some
consultation and debate, and also at that time the LME was
owned by its clearing members, so there was an element of
rebate through the inevitable uplift in the eventual sale
price," the managing director of a brokerage said, noting that
the exchange denied the higher fees were intended to generate a
LCHs move "underlined the
validity of the decision of the LME board to self-clear and
manage its own destiny," he said.
The source at a major brokerage
firm played down the length of the notice period.
"Its never good to have a
short notice period, but then again, I dont know that a
long consultation period would have achieved anything," he
Sources familiar with the
clearinghouse said that it has not increased fees for LME
clearing members since 1987.
A version of this article was first
published in AMM sister publication Metal