The London Metal Exchange (LME) revealed on Thursday its plan to adapt its closing price methodology for some of its most traded contracts. Beginning January 2024, this evolved strategy will be phased into its systems after extensive market-wide consultation.
This revision is part of the broader efforts launched in March by LME to reinforce its markets. The current change is hoped to rejuvenate its underperforming nickel contract.
According to LME, which is under the ownership of Hong Kong Exchanges and Clearing, this modernized approach to calculating closing prices will enhance transparency. The Exchange also said it would put it in alignment with industry benchmarks.
Under the renewed framework, the volume-weighted average price (VWAP) calculation will be broadened to include five more prompt dates for several metals. These metals are aluminium, copper, zinc, lead, and nickel, as specified by the LME.
Experts say the decision demonstrates the LME’s commitment to advancing its trading procedures, ensuring they mirror the best practices in the metals industry.
LME Chief Executive Matthew Chamberlain said in a statement that this will be a major step forward for the Exchange.
“We appreciate that this evolution will impact the way market participants access and interact with LME price discovery – particularly in respect of members guaranteeing closing prices to their clients.”
“In response to market feedback, we will now be phasing in the implementation from January 2024 to ensure participants have adequate time to prepare for the changes,” he continued.
The changes are expected to boost market confidence, especially in the wake of challenges faced by the nickel contract.