The London Metal Exchange (LME) is to implement its linked load-in/load-out (LILO) rule and to proceed with further warehousing reforms following the success of its judicial review appeal.
A two-week consultation with listed warehouse companies began yesterday with regard to some minor amendments to the LILO rule, including an altered start date, which will now see the First Calculation Period starting on 1 February 2015, following the required three-month notice period to warehouses.
“We are pleased to be moving ahead with our planned reforms following our success in the Court of Appeal,” says Garry Jones, LME chief executive. “As the world's leading base metals exchange, the LME has a duty to ensure the integrity of its reference prices and the operation of a fair and liquid market for all industry participants. The implementation of the LILO rule and related reforms will assist us in continuing to fulfil this duty.”
“Following the start of our consultation in July 2013, the behaviour of queued warehouses altered materially in that they have demonstrated a net load-out of metal since that time in anticipation of the LILO rule,” says Matthew Chamberlain, LME head of business development. “While it is true that market conditions have also improved since 2013, the market knows that a proportion of global metals production today still flows into storage. Without the LILO rule, large amounts of metal could have been directed to affected warehouses, thus further lengthening queues. However, we believe that the anticipation of LILO has meant that this has not occurred on as large a scale as it would have done otherwise. And the introduction of LILO will ensure that, over time, stocks – and eventually queues – at the two remaining affected warehouses should fall.”
Following the consultation, the LME will publish further information regarding its other warehousing reforms, which it has committed to discuss with the market. These will include re-assessing the possibility of capping or banning rents in queues and of capping the level of daily rents and FoTs; the warehousing logistical and legal review; and the rules required to support premium futures contracts.