Lme warehousing reforms7 Nov 2014 20:26
The London Metal Exchange proposed changes designed to strengthen its powers to investigate and prevent market abuse at warehouses amid scrutiny of delivery backlogs.
The proposed rule changes represent the latest step in the LME’s efforts to reduce wait times for receiving metal. The exchange, which monitors a network of about 700 depots, plans to require warehouses to submit more information to ensure companies are not distorting the market, according to an e-mailed statement today.
The LME said last month that it will require warehouses to load out more metal than they take in, starting in February. It said today that it wants to require storage companies to release an additional 500 metric tons of aluminum alloy a day, which will help bring contract prices closer to the physical market, the notice said.
Independent Auditor
The exchange will also require warehouses to appoint an independent auditor to count all of the stock each company holds in bourse-approved depots, according to the proposal. It currently tracks 10 percent.
Counting all stockpiles will give “an additional level of assurance that all warrants are backed by physical metal” after the Qingdao port probe, the LME said in a notice to members. Chinese authorities earlier this year discovered the same metal in the port of Qingdao was pledged multiples times to secure different loans.
The LME said it wants to add a code of conduct that bans behavior to manipulate the market, such as creating or maintaining a queue for metal delivery. It also plans to take disciplinary action against any price-distorting behavior.
The exchange said the consultation on the proposed reforms and changes to its rules for approving warehouses will run until February.
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