LME initial margin cut could save members 'billions of dollars' but CME still cheaper
London Metal Exchange members could save vast sums of money – as much as billions of dollars – if UK regulators approve a cut to its initial margins (IMs), sources claimed.
The LME has not disclosed the size of its proposed cut to margins calls – the amount of money/collateral called by the clearing house for the purpose of insuring against loss on an open position – but it is likely be a reduction of around 30% from current levels, several sources told Metal Bulletin.
The IM rates are updated monthly – for September, aluminium was $3,400 per 25-tonne lot and copper $12,800 per 25-tonne lot.
"I heard that it would be a 25-30% cut," a senior category I member said. "Will it be welcome? Sure. But I'm not convinced it will be enough to alter the client mindset."
A second member also confirmed talk of a 30% cut, while a third said that this figure sounds realistic.
The exchange has had several meetings with the Bank of England (BoE) and hopes to make an announcement shortly, Metal Bulletin understands.