The London Metal Exchange (LME) has announced plans to enhance participation and liquidity on its electronic platform, LMEselect.
The LME is focusing on increasing liquidity on standard monthly dates to provide a simpler way to trade existing LME futures.
“Our market’s unique structure is strengthened by the involvement of many types of participant. We aim to work alongside our members and our Committees to improve access to trading – particularly on our electronic platform, LMEselect – by removing any structural barriers faced by existing and potential LME users,” says Matthew Chamberlain, Head of Business Development at the LME.
Maximising monthly liquidity
The LME’s unique settlement-date structure gives futures traders the flexibility to settle their contracts daily out to three months, weekly out to six months and then monthly out to a number of years forward. However, more than 65% of the open contracts on the LME are set to expire on the same monthly dates, pointing to substantial market demand for a more standardised way to trade.
“Market convention on the LME is that the standard monthly settlement date is the third Wednesday of each month,” says Chamberlain. “By enhancing liquidity on LMEselect for these ‘third Wednesdays’, we believe we can meet demand for a more traditional futures-style trading, offering the option to place bids and offers on outright monthly dates, without altering the unique structure of our market.”
To provide this exposure, the LME is proposing to relax the LMEselect order-to-trade ratio on third Wednesdays to encourage greater participation by users on these dates. The Exchange is seeking members’ views on this proposal in a four-week consultation with the market, launched today.
The LME also plans to provide incentive programmes for users, and to display implied prices based on bids and offers in the order book, which could contribute further volume and liquidity to the platform.
The LME has already taken or announced several steps to enhance liquidity, including giving clients direct access to market data and optimising tick sizes. Looking ahead, the Exchange also aims to provide a new pre-trade risk management tool on LME Select, which will enable clearing members to set limits for all client orders via the platform’s front-end, giving them more confidence when allowing their clients direct access to the Exchange.
