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CME aluminum contract to focus on liquidity

Keywords: Tags  CME Group, aluminum futures contract, Harriet Hunnable, aluminum, London Metal Exchange, LME, Claire Hack


LONDON — CME Group Inc.’s planned physically delivered aluminum contract will rely on getting the specification right and driving liquidity for the contract, managing director of metals products Harriet Hunnable told AMM sister publication Metal Bulletin.

"The CME is very good at driving liquidity around new markets. We’ve already brought in liquidity around iron ore contracts and around small, 1,000-ounce silver contracts," she said.

"We will make sure we have investments to bring it through (on aluminum). The key thing is getting the contract specs right and the warehousing set up."

The group is working to ensure the associated warehousing structure is robust and "well-understood" before launching the contract, Hunnable said.

Market participants have specifically requested the implementation of such a contract, she added, as the exchange has "experience and expertise" in setting up warehousing, creating liquidity and providing clearing services.

"(We’re working on) increased transparency and good price discovery, liquidity and facilities for the over-the-counter market," Hunnable said.

"Essentially, the market in Asia, and now the market in Europe and the U.S., understands futures and is keen to have a CME aluminum futures contract."

In terms of the specification for the contract, CME Group "won’t make it too difficult" for traders to create an arbitrage with the London Metal Exchange, she said.

"I can’t give exact details about it yet, but we will make it so that people can trade it if they want to (set up) an arbitrage with the LME. There’s an opportunity for the market to evolve and grow," she said.

"We can take it to the next stage, and (to do that) it needs greater liquidity and transparency. Physical and financial players would like to see a contract at CME Group."

Futures contracts are much more efficient than forward contracts and uncleared swaps in terms of managing and trading on markets, she added.

"I think the new environment for accounting for derivatives and the requirements around segregated accounts and the treatment of forwards make futures much more cost effective," Hunnable said.

"We have experience in setting up vaulting for precious metals and warehousing for copper, and we will be using our expertise to inform us on what’s the best way to set this up for aluminum."

CME Group is consulting with the industry to make sure the new contract will be "fit for purpose," she said.

"We’re speaking to everybody along the supply chain and we’ve had tremendous support. We think change is going to happen and we want to be part of that," Hunnable said.

"There’s only one liquid contract trading and that will become more expensive under the EMIR (European Market Infrastructure Regulation) regime. We need change." 

A version of this article was first published in AMM sister publication Metal Bulletin.


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