LME confirms plan to introduce position limits

LONDON, Oct 22 (Reuters) - The London Metal Exchange (LME) confirmed on Thursday plans to introduce limits on large positions for the first time to avoid market squeezes, initially on its new aluminium premium contract.

The LME had launched a consultation on the proposed changes last month and said in notice that after receiving no responses it would introduce the changes on Nov. 23.

The use of position limits may be expanded to other contracts if upcoming legislation requires them, the exchange said last month.

Commodity traders are currently exempt from the EU’s Markets in Financial Instruments Directive (MiFID). That is set to change under MiFID II, which takes effect from January 2017.

The LME, the world’s oldest and largest market for industrial metals, has its own system of controlling the impact of large positions, but that would not be viable for its new aluminium premium contract due to be launched on Nov. 23, it said.

Under the LME’s existing “Lending Guidance”, the holder of a dominant position must sell some short-term contracts at fixed prices to other participants if the latter need them.

But since the new aluminium premium contract will have monthly prompt dates instead of daily or weekly ones, the Lending Guidance would not be practical, the LME said.

The consultation by the LME, owned by Hong Kong Exchanges and Clearing Ltd, also included other changes to its rule book. (Reporting by Eric Onstad, editing by David Evans)