LME clearing fees will match LCH.Clearnet's just-tripled charges

Wed Jun 26, 2013 10:54am EDT

* LCH.Clearnet tripled fees for LME trades on June 1

* LMEClear aims to clear OTC, gold and silver products

LONDON, June 26 (Reuters) - The London Metal Exchange (LME) expects its in-house clearer LMEClear will charge members fees similar to provider LCH.Clearnet's just-tripled charges for clearing LME trades.

Brokers will pass these LME charges on to clients next year because rules - brought in to stop trading practices seen as contributing to the 2008 global financial crisis - mean they will no longer be allowed to net client positions within their own accounts.

LCH.Clearnet tripled fees for clearing LME trades to 15 pence per lot from 5p as of June 1.

"It's still far too early to say, but by early summer next year, we'll know where we'll set the tarriffs, and I don't think they'll be higher than current rates," said Trevor Spanner, LME managing director of post trade services, who is in charge of setting up LMEClear.

The LME, the world's No. 1 metals marketplace, was bought late last year by Hong Kong Exchanges and Clearing (HKEx) for $2.2 billion. HKEx is under pressure to show a return on its acquisition, and is eyeing LMEClear for returns.

Spanner hopes LMEClear will quickly expand its clearing services to commodities such as gold and silver and eventually to over-the-counter (OTC) metals products.

"There's a sizeable business at the moment that members do OTC, and it's going to get much more expensive to do that with new regulations. We're looking at designing (OTC) contracts that could at some point give members the option to route them into LMEClear for clearing," he said.

One new EU regulation, European Markets Infrastructure Regulation (EMIR), aims to increase transparency in OTC markets.

The OTC market for contracts such as swaps is worth an estimated $600 trillion globally. It was widely implicated in the 2008 when the credit default swap (CDS) market imploded.

"There's costs involved with complying with EMIR. No one should be surprised that increased regulations brings increased overheads. But for us, I think the opportunities outweigh the costs," Spanner said.

Clearing houses act as intermediaries between parties to a trade to reduce the risk of one (or more) parties defaulting.

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