Introduction of Cleared Average Price Swaps Contracts on the London Metal Exchange

Introduction

The London Metal Exchange Limited (LME) and LCH.Clearnet Ltd (LCH.Clearnet) are currently preparing for the launch of cleared average price swaps contract for eight non-ferrous metals. This circular provides information about the new contracts.

Launch Information

The launch of cleared average price swaps contract for eight non-ferrous metals will take place on Monday, 31st March 2008. Trades originating from telephone deals can be input to the LME Matching and Clearing System (MCS) from this day.

Systems used for Trade Capture, Matching and Clearing

Trade capture, matching and clearing of the average price swaps contracts will utilise the MCS in the same way as LME non-ferrous metals, steel and plastics contracts.

Valid Prompt Dates

The first tradable month will be April 2008.  The tradable months are given below.

Cleared Average Price Swaps Contracts – USD Only

Trade Suspension

The traded price and lot size of cleared average price swap trades presented to LCH.Clearnet for registration are validated against a price range and lots limit file. The lots limit is presently set at 1500 futures lots for all contracts. The price limit is set to be identical to the prevailing scanning range for each contract.

Clearing Procedures

These contracts will be cash settled and processed by MCS in the same way as existing LME contracts.

PPS and Banking Procedures

Standard LCH.Clearnet PPS and banking procedures will apply to these contracts. If you have any queries regarding PPS arrangements please contact Siobhan White on +44 (0)20 7426 7044 or siobhan.white@lchclearnet.com

Margin Methodology

Contracts will be margined using London SPAN in the same way as all other LME contracts. Details of all margin obligations will be included in the same MCS reports as for all existing products. Also all margins will be posted to the LCH.Clearnet Banking system and details will be included in all the usual Banking reports and screens.

London SPAN Parameters

LCH.Clearnet will publish margin rates for the new contracts in a separate circular. Details will be found under the ‘Risk Management’ / ‘Ltd’ section.

PC Bridge

A new release of PC Bridge (V4.4-0) was made available for the launch of the steel billet contracts. This will fix a bug that could prevent access to the Futures Closing Prices Filter maintenance screen. This would only arise if users don’t set the filter to retrieve “All Commodities”. This is therefore not a mandatory upgrade.
If you require a PC Bridge V4.4-0 disk please contact LCH.Clearnet Service Desk on 020 7426 7200 or email them at servicedesk@lchclearnet.com.

LPRS and PC LPRS

LME do not require members to report cleared average price swap positions to LPRS.

Fees

The data capture, registration and cash settlement fees for these contracts are listed below:

All fees are per lot per side. VAT will zero-rated.

LCH General Regulations, Default Rules, Settlement Finality Regulations and Procedures

Amendments and additions to the LCH.Clearnet General Regulations, Default Rules, Settlement Finality Regulations and Procedures for these new contracts will be available on LCH.Clearnet website (www.lchclearnet.com), under the section ‘Rules & Regulations, under sub-heading ‘Ltd’ and ‘Recent and Forthcoming Changes’.

LME Systems User Guide

The LME Systems User Guide will be updated to reflect the new regional steel billet futures contracts can be found on LCH.Clearnet website.   http://www.lchclearnet.com/markets_and_services/exchange_and_commodity_derivatives/lme/lme_systems_user_guide.asp

Training

LCH.Clearnet runs a number of courses and workshops including ‘Clearing for the LME course’. This will be adapted to include the new contracts.  If you wish to discuss training requirements please contact Louise Edwards on +44 (0)20 7426 7266 or trainingandeducation@lchclearnet.com.

Miscellaneous

Questions relating to the topics covered in this circular should be directed to the following:

Yours sincerely

David Farrar
Director, LME Relationship Manager
Commercial Services