LME WAREHOUSING: How might the system be gamed?

One common reaction to the London Metal Exchange's consultation on warehousing was that warehousekeepers and their owners will try to circumvent the rules. Here are two excerpts from the LME's consultation report that outline how it intends to stop them from doing so.

How might the new system be gamed? The “rotating queue” model. Under this approach, a warehouse operator would incentivise a large amount of warranted metal into its Warehouse in a given location. As part of this incentive, the operator would require the metal owner not to float the warrants until a point in the future – as such, warrants would not be cancelled, and no queue would form. As such, new metal could continue to be loaded-in to the Warehouse with no required incremental load-out under the Rule. Once a very large amount of metal had been accumulated in the Warehouse, the warrantholders would be allowed to sell their warrants...


Mark Burton

November 11, 2013

11:31 GMT