LONDON (Reuters) - The London Metal Exchange could defer its plans to charge fees on over-the counter contracts that reference LME prices because many of its members are on deadlines to get their systems ready for new European Union rules.
The 140-year-old exchange announced last month it would start charging a new OTC fee in January balanced by cuts of other fees crucial to its physical user base designed to lure back volumes.
The Markets in Financial Instruments Directive (MiFID II) that comes into force in January 2018 across the EU, aims to apply lessons from the 2007-09 financial crisis and stop abuse of pricing power and speculation.
The new EU rules will significantly increase reporting requirements for banks and brokers and with the position limits only just published by regulators, financial firms trading metal derivative have very little time to adjust their systems.
“Many members have pointed out they will be working right up until the end of the year on MiFID II,” LME CEO Matt Chamberlain said at a briefing ahead of LME Week, an annual gathering of the metal industry in London next week.
It could be a challenge for the exchange’s members to be ready by January, he said.
“We would be sympathetic to going live a little bit later in 2018...We are having an open dialogue with members about how best to minimise the reporting burden.
Before any rules are implemented, the exchange will consult with its members. The consultation to be launched in the middle of November will detail what the exchange is proposing, how reporting of OTC trades will work and exemptions proposed.
“We’re not saying the OTC booking fees are going to be universally popular, but it is an opportunity for people to say what they think.” Chamberlain said.
Chamberlain said the exchange is trying to balance out the costs of trading on and off exchange. That is why it is cutting fees on carry trades that bridge contracts maturing on different dates.
“The thing that has unified the market ... is to make sure that our members have time to put in place the reporting they will need to do, in order to tell us what the OTC fee is. Even if it’s zero, they still need to report.”
Earlier in October, Chamberlain told Reuters he was confident that banks would not try to evade its new fee on OTC trades, which is likely to be $1 per equivalent contract.
“We know that they are compliant organisations ... also quite heavily regulated institutions,” Chamberlain said at that time. “Their own internal compliance guys are making sure their reporting is accurate.”
Reporting by Pratima Desai; Editing by Adrian Croft