London Metals Exchange cuts fees for short-dated trades

LONDON (Reuters) - The London Metal Exchange will cut fees for short-dated trades from Sept. 1, it said on Friday, in what sources say is an attempt to halt the slide in trading volumes since charges were hiked across the board last year.

Traders and clerks react on the floor of the London Metal Exchange in the City of London February 14, 2012. REUTERS/Luke MacGregor/File Photo

Short-date trades or carries are those between tomorrow and 15 calendar days ahead.

“The LME has concluded that a 44 percent fee reduction on member short-dated carries should be implemented, bringing the cost down to match the client fee of $0.50 per side (trading and clearing inclusive),” the exchange said in a statement.

“This fee is lower than the approximately $0.58 charged prior to the LME’s fee changes in 2015.”

Such fees routinely multiply to thousands of dollars.

For an aluminium consumer seeing a potential 100,000 tonne short-term shortfall, buying that metal on the LME could cost up to $10,080 in fees if the broker passes on all the fees. If the consumer decides the next day that metal isn’t needed after all, the cost of selling it on the exchange is another $10,080.

One senior trader at a metals brokerage said the exchange should have cut fees “a long time ago”.

Volumes on the 139-year-old exchange have been falling since trading fees rose an average 31 percent in January 2015. The drop accelerated this year; in the six months to end-June volumes are down nearly 9 percent from the same period in 2015.

Much of the drop is due to some core clients such as producers and consumers moving to rival exchanges or using over-the-counter contracts.

Some brokers netting trades during the day to limit the amounts they put through the LME are also draining volumes.

The root of the problem is tom/next trading -- buying tomorrow and selling the day after -- used by consumers and producers to manage short-term mismatches, which before January 2015 did not incur fees.

“People were hoping they would get rid of the fees on tom/next completely,” a metals trader said.

Aluminium highlights the problem, with tom/next volumes in the second quarter of this year down about 37 percent since the last quarter of 2015.

The exchange also said it will limit the charges for member and client position transfers to allow users to migrate large open positions in order to efficiently manage portfolios.

“The average cost for such large position transfers in 2015 was approximately $30,000. Such charges will now be capped at $10,000 per transfer, representing a significant saving for members and their clients,” the LME said.

It also proposes that LME Clear will reduce the initial margin payable for LME positions subject to regulatory approval.

The world's oldest and largest market for industrial metals is owned by Hong Kong Exchanges and Clearing Ltd. 0388.HK.

Reporting by Pratima Desai, editing by David Evans/Ruth Pitchford