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LCH.Clearnet increases LME trade fees, shocking brokers

Keywords: Tags  LCH.Clearnet, LME, registration fees, user fees, brokers, LME Clear, London Metal Exchange, Metal Bulletin Mark Burton

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 LME’s clearinghouse) is launched," a source at a major brokerage firm said.

The new fee goes into effect June 1 and will affect all LME clearing members, the clearinghouse said.

"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, said.

"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 clearinghouse’s move, including those that are an integral part of the LME’s 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 fees—which took the market back to last year, when the LME itself introduced a fee on cross-trades—was 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 better price.

LCH’s 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.

"It’s never good to have a short notice period, but then again, I don’t know that a long consultation period would have achieved anything," he said.

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 Bulletin.

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