HOTTER ON METALS: Changing LME clearing model could kill the golden goose

The London Metal Exchange and its clearing house are revisiting a proposal to transition to a different way of calculating its clearing methodology.

The exchange announced its discussion paper on the topic on Tuesday January 19.
The last attempt was made in 2017 and was rejected by LME members because it would make the provision of credit lines expensive and result in the rapid withdrawal of credit line capabilities. There’s no evidence to suggest anything much has changed since.
A quick recap on how margins work on the LME shows why.

Right now, variation and initial margining for LME Clear is operating under a Discounted Contingent Variation Margin (DCVM), which realizes forward profits until the settlement date. This, along with the dates structure of the exchange, is a key reason why the LME is often described as a forward market...


Andrea Hotter

January 19, 2021

16:20 GMT

New York