The London Metal Exchange said Wednesday it had issued a market-wide consultation on introduction of an over-the-counter booking fee for financial participants and new trading regulations for contract creation and execution.
Subject to the outcome of the consultation, the OTC fee is now expected to be introduced next April, rather than in January as initially proposed.
The aim of the financial OTC booking fee proposal is to rebalance the current disparity between the fees paid by members servicing their clients with an LME client contract and those servicing them with an OTC contract based on LME prices at a substantially reduced fee, the exchange said.
The new proposed fee would be $1.00 per equivalent LME lot -- corresponding, for instance, to 4 cent/mt in respect of aluminium or copper -- to be paid by financial institutions for each OTC trade executed in place of an LME client contract.
The LME said it is also proposing to provide a set of waivers, offsets and discounts, which would cut the total financial OTC booking fee payable by many participants, and is intended to address feedback already received from the market.
"We have spoken extensively with the market about the introduction of the new fee, and many members welcome the proposal in bringing fairness to the LME market," LME CEO Matt Chamberlain said in a statement.
"We have already worked to address the concerns raised by others through proposing various waivers, offsets and discounts. Overall, we are confident that the proposals represent the right steps in bringing greater fairness to the market, and compensating the LME for the services it provides to the industry," he added.
The financial OTC booking fee would be payable by financial intermediaries (members and non-members), but would not be directly payable by physical participants or investment funds.
"Although banks and brokers may choose to pass on fees to physical clients (in, for example, hedging spreads), the LME's discussions with the physical market suggest that this should not be unduly burdensome," the exchange said.
Since many OTC contracts are created on third-party platforms, the LME said it is also proposing new rules in the context of the financial OTC booking fee regarding the use of its data in contracts transacted on such platforms.
"The LME recognises the significant role which many third-party platforms play in our market -- most notably, members' single dealer-to-client facilities," said Adrian Farnham, CEO of the exchange's clearing unit, LME Clear, in the statement.
"We have stated that we would be pleased to work with other platforms where our stakeholders indicate that they are supportive, or where open-access rules apply," he said.
"However, we must also protect the liquidity of our market and the commercial interests of our exchange by setting out clear and fair rules, so that all members and clients observe the same standards in supporting centralised price discovery and trade transparency," Farnham added.
The LME is proposing a set of technical rules "to protect the integrity of its trading venues and data." These comprise a requirement for inter-office trades to be processed on a gross basis; a requirement for all electronic orders to be transmitted to the LME's electronic trading system -- LMEselect -- and new provisions in the rulebook clarifying the onward distribution of data by members to their clients.
The exchange said it intends to issue a consultation decision notice in early February 2018. Subject to the consultation, the financial OTC booking fee is proposed to take effect from April 3, 2018.
"This date has been moved back from the original proposal of January 2018, given feedback from members that it would not be possible to implement the fee at the same time as MiFID II preparations," the LME said, adding that all other proposed rule changes would come into effect shortly after issuance of the decision notice.
