London Metal Exchange has shortened the limit on the length
of queues it will permit at individual warehouse locations to
50 days, down from a 100-day limit it proposed in July.
In sweeping new
rules announced Nov. 7, the LME also said it will take action
to prevent queue incentivization and introduce a number of
other recommendations put forward by stakeholders during a
three-month consultation on its proposals.
"(The) LME will
investigate and act to prevent warehouse companies
unreasonably incentivizing the formation of queues," the LME
recommendations include the publication of new delayed
warehouse stock reports and commitment of traders data, the
creation of a new physical market committee and an "ongoing
commitment to best-practice information barriers," the LME
said Nov. 7.
It will also
investigate the possibility of introducing products linked to
physical premiums, the exchange said.
The LME proposals
respond to unprecedented scrutiny and criticism of its
warehouse network, particularly in the United States, where
Senate investigations and lawsuits have been launched to
examine claims made by physical consumers and other
stakeholders that the LME, warehouses and their parent
companies have inflated physical prices by withholding metal
from the market in long warehouse queues that have developed
in locations such as Detroit.
"As the worlds
leading base metals exchange, the LME has a duty to the
entire metals community to run a fair and orderly market,"
LME chief executive Garry Jones said in the statement.
"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," he added.
"Having carried out
a rigorous and in-depth market engagement program involving
over 70 meetings and more than 30 written responses, we now
call on all market participants to move forward under these
new rules, which we believe best balance the needs of all LME
stakeholders," according to Jones.
To strengthen its
existing physical delivery mechanisms, the LME will also
commission a full external logistical review of its warehouse
system to assess "reasonable" operational expectations and
requirements, as well as reviewing the warehousing
additional measures announced Nov. 7, the LME still expects
the proposals to be implemented as planned on April 1,
Under the proposals,
warehouse companies with an outbound delivery backlog of more
than 50 days in an individual location will have to deliver
out more than they load in, according to a scaled
currently required to deliver out a daily tonnage of 3,000
tonnes, for example, under the proposal would need to load
out at least 1,500 tonnes per day more than it loads in, the