LME and World Gold Council launch LMEprecious

The following is an edited amalgam of statements by the London Metal Exchange on the LME and World Gold Council’s launch of the LMEprecious trading platform on July 10 in London.

LMEprecious has introduced exchange-traded and centrally cleared precious metal products to the London market. It comprises spot, daily and monthly futures for gold and silver. The contracts are designed to support regulatory change, enabling greater market transparency and access, as well as providing more robustness to the precious metals market.

LME Gold and LME Silver futures provide opportunities for trading, price discovery and risk management, which creates an enhanced market structure for the precious metals community.

“We and our partners have worked hard to develop contracts for the precious metals community that complement the OTC market while offering greater capital efficiency, transparency and accessibility to market participants,” LME precious metals head Kate Eged said.

Robin Martin, managing director of market infrastructure at the World Gold Council, said the launch of LMEprecious is an “important step in the modernization of the London market. The regulatory and market environment has evolved over recent years and we are confident that LMEprecious will help reinforce the strengths of the London market.”

The LME, World Gold Council and six partners — Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis, OSTC and Société Générale — developed LMEprecious after engagement with major market participants and users to accommodate the interests of the full range of market stakeholders.

LMEprecious has several features:

• A flexible date structure — Gold and silver can be traded on a daily basis, from T+1 (TOM), T+2 (SPOT), through to T+25. LMEprecious also offers standardized monthly futures contracts, out to five years;

• Tradeable carries between all futures dates — Including the crucial TOM/NEXT carry trade for inventory management, and monthly roll trades for funds and other investors;

• Displayed electronic liquidity from day one — The LME’s market-making partners deliver executable prices across the gold and silver forward curves;

• Loco London delivery — Gold and silver bullion physically held in London allows for the efficient settlement between LMEprecious and OTC market deliveries;

• Optimized capital management — LMEprecious contracts are cleared by LME Clear, the LME’s custom-built metals CCP, with scope for material capital savings; and

• Flexible booking model — LMEprecious contracts can be traded electronically via LMEselect, and through the 24-hour telephone market.

LME Gold and LME Silver contracts are traded on the LME’s electronic market, LMEselect, from 1:00 to 20:00 (London time) and via the 24-hour telephone market.

The LME gold and silver contracts saw volumes surge in their first week of trading. LME Gold traded a total of 25,590 lots (2.6 million oz., or 79.6 tonnes) while 2,556 lots (12.8 million oz., or 397.5 tonnes) of LME Silver were transacted.

LME Gold and Silver open interest also reached 9,380 lots and 2,253 lots.

Liquid spot order books for both contracts were available from launch with bid/offer spreads at US20¢ gold and US1¢ silver, and carries quoted in depth out to five years forward.

The provision of implied pricing means tradeable outright monthly futures are visible on-screen, along with a real-time transparent forward curve out to five years.

Eged said this “promising start for our gold and silver contracts indicates the strength of industry support for LMEprecious, which was designed to provide a solution for the London market faced with challenges such as ongoing regulatory change, increased regulatory capital and transparency requirements, and the overall push for modernization.”

The World Gold Council added that the uptake of LMEprecious has been “highly encouraging” and shows the market’s appetite for a comprehensive exchange-traded offering to complement the London OTC market.

The WGC said it “firmly backed the vision behind LMEprecious from the outset,” and has been confident this industry-supported solution would help the wholesale gold market evolve in the interest of all its participants.