LME Requests Six-Month Delay to Telephone Trading Compliance

The London Metal Exchange (LME) has stated that it will take an extra six months to ensure that trades made via telephone are compliant with new transparency requirements implemented as part of MiFID II. 

The European Securities and Markets Authority (ESMA) initially set a deadline of 1 January 2020 for compliance with the transparency rules set out in MiFID II. 

Most trades made on the LME already adhere to MiFID II’s transparency rules, and waivers apply to most trades which don’t meet the necessary requirements. 

However, ESMA has expressed concern about trades transacted on the LME telephone market. The principal concern here is that bids and offers – that is, pre-trade information – are not published until the final deal has been executed. 

To rectify this, the LME has said that members would accept a ‘systematic fixed price auction’ or ‘FPA’ approach. According to the FPA approach, bids and offers are published, and then trades are actioned following a 30-second delay. 

This approach would ensure compliance with MiFID’s transparency rules. The LME has also claimed that this approach would have the least impact on the market of any alternative. 

However, adopting the FPA approach would entail a range of technical changes to be made which would result in a six-month delay to MiFID II compliance. At present, the LME has said that this system could be in place by mid-2020. 

If ESMA rejects the LME’s proposal, the LME has also said that a ‘manual’ version of this system could be installed in January as a temporary measure. 

Another alternative to the FPA was proposed, but ultimately LME members were not in favour of it. This approach – the customer order and market quoting approach – would result in MiFID compliance, but would also introduce more stages into the trade lifecycle and require members to publish adjustments to fees. The LME expressed concern that this would drive customers away from the LME and to the over-the-counter (OTC) market to avoid higher fees.

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