LME proposes more transparent reporting of big positions

LONDON (Reuters) - The London Metal Exchange is seeking views from its members and other interested parties about the potential for more transparent reporting of positions above certain levels.

Traders and clerks react on the floor of the London Metal Exchange in the City of London February 14, 2012. REUTERS/Luke MacGregor

The LME monitors all positions held on its market, but is proposing putting the onus of reporting any large positions on members.

“The obligation to report will fall to the member who is holding a position, either directly or on behalf of their client(s), which is in excess of the relevant accountability level,” the exchange said in a release on Thursday.

The LME is seeking responses to the consultation by April 8.

“The LME may need to share the responses received with regulatory authorities or its legal advisors or other professional advisers, or as required by law. Apart from this, all responses will be treated in confidence.”

Accountability levels will apply to single prompt dates or the next settlement date and all prompt dates or all settlement dates in the future.

While allowed under LME rules, holding a large, sometimes dominant position can have some short-term influence on prices for contracts that will soon reach maturity.

It could mean short position holders or sellers of metal for future dates, which could be bets on lower prices or hedges for physical holdings, having to pay more to buy back and roll positions forward.

If positions exceed accountability levels “the LME will require further information as to the nature and purpose of the position of that account or, if appropriate, linked accounts as determined by the LME”, the exchange said.

“(The exchange) may direct that members cannot accept further orders that increase the position, or direct that the position be reduced to a level below the accountability level.”

Metal industry sources welcomed the initiative.

“If implemented, it should restrict the influence of the speculative element in the LME market,” one trader said.

The rationale behind holding large positions must be reported to the LME by email.

The exchange will aggregate the position of a client across all members for the accountability levels.

“Likewise, the LME shall aggregate the positions of a member or client and such entity’s related group companies unless the entity can demonstrate that the positions were independent,” the exchange said.

“The LME will also aggregate the positions of unconnected parties if the LME Market Surveillance department believes that

there is a common purpose between such parties.”

Reporting by Pratima Desai; Editing by Elaine Hardcastle and Alexander Smith