London Metal Exchange Proposes Reforms to Boost Stability

LONDON (Reuters) – The London Metal Exchange's clearing house proposed reforms on Thursday to boost stability, including tripling the capital requirements for members.

The exchange, the world's oldest and largest market for industrial metals, also stated that LME Clear would reduce the contributions members have to make to its default fund.

> "These are the latest set of proposals designed to increase transparency, predictability and overall resilience for clearing members and market participants more broadly," said LME Clear CEO Michael Carty.

A consultation will be held until December 16 on the proposals, which would raise the minimum net capital requirement for members from $10 million to $30 million.

> "This proposal… (would) reassure market stakeholders of the resilience of LME Clear markets," the statement indicated.

LME Clear would shift towards a so-called "defaulter pays" model and introduce an upper limit to its default fund, restricting how much clearing members must pay.

The clearing house also plans to implement a new methodology to limit the percentage by which the default fund can decline during any recalculation, ensuring more stable contributions.

In March 2022, the LME had to cancel $12 billion in nickel trades after prices surged, as a record $20 billion in margin calls could have led to at least seven clearing members defaulting.

The LME is owned by Hong Kong Exchanges and Clearing Ltd.