The London Metal Exchange (LME) is planning to introduce a cap on the rent that can be charged by an LME-approved warehouse for metal held in a delivery queue, and an increased minimum load-out rate for metal stored in LME warehouses.
The LME’s decision comes in response to market-wide discussion and consultations.
Since 1 July 2015, the LME has sought feedback on a proposed increase in the standard load-out rate (LORI) and on suggested queue-based rent capping (QBRC) rules. It has received 20 responses to the consultations overall.
After considering respondents’ views, the LME now intends to impose rules that will require warehouses to deliver out stored metal within specific periods of time, after which rent restrictions will take effect. The LME will also reduce the threshold at which the highest of its bands of load-out rates take effect, and will increase the load-out rate for all bands.
“The LME has given careful consideration to the results of it consultations, and the majority of respondents understand the need for additional reform,” says Matthew Chamberlain (pictured), Head of Business Development. "Our reforms have been successful in cutting down wait times for metals delivery, but we feel the measures we are announcing today are necessary not only to address the impact of existing queues, but also to prevent the emergence of potential future queues.”
As part of the implementation of QBRC, the LME is also introducing a mechanism to address potential abuse of the new regime. This measure will stagger the dates at which the rent caps would come into effect to ensure that metal owners cancelling large amounts of metal do not benefit from discounted rent in a queue of their own creation.
LORI is expected be implemented on 1 March 2016 and QBRC (including the anti-abuse provisions) on 1 May 2016. This announcement – together with Monday’s launch of LME Aluminium Premiums and the LME’s commitment to monitor, and if necessary address, high levels of warehouse fees – marks the delivery of all 12 items of the LME’s warehouse reform package announced in November 2013.
