On September 22, the London Metal Exchange (LME) provided revised guidance on the structure of LME, market terminology and order execution. As with previous versions, the revised guidance explains that LME recognizes two types of contracts: client contracts between customers and certain types of LME members and exchange contracts between LME members. The guidance reminds LME members that all LME contracts are between parties acting as principals and that members cannot trade exchange contracts if a member is acting as an agent for a customer. The revised guidance also addresses different methods by which LME members may trade and describes several different order types on LME.
Of particular importance, the guidance highlights certain clearing arrangements of the LME’s new clearing house, LME Clear, that are intended to comply with the client segregation requirements created by the European Market Infrastructure Regulation. LME members that enter into client contracts are required to offer clients a choice between an omnibus or individually segregated account at LME Clear. Client contracts registered on the LME matching system (LMEsmart) must align with the specified omnibus or individually segregated account. Additionally, when a client wishes to transfer positions from an account maintained at an LME member that has experienced an event of default, as defined in the LME rules, to a solvent LME member, the client must notify LME Clear in a manner consistent with LME Clear rules. Failure to adhere to LME Clear rules will result in the client’s positions being closed out.
The revised guidance is available here.