lmeprecious presentation

LMEpreciousAugust 2016

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Executive SummaryModernising the gold and silver markets to better reflect market need and deliver greater choice

Loco London deliveryGold and silver bullion physically held in London allows for the efficient settlement between LMEprecious and OTC market deliveries

Flexible date structureBoth gold and silver can be traded on a daily basis, from T+1 (TOM), T+2 (SPOT) to T+25. Monthly futures contracts are also available out to five years

Flexible booking modelContracts can be traded electronically and via telephone, allowing trades to be voice-broked, and then brought onto exchange as cleared futures contracts

Displayed electronic liquidity from day oneThe LME’s market-making partners will deliver deep and tight executable prices across the gold and silver forward curves

Tradeable carries between all futures datesIncluding the crucial TOM/NEXT carry trade for inventory management, and monthly roll trades for funds and other investors

Optimised capital managementContracts are cleared by LME Clear, the LME’s custom-built metals CCP, with scope for material capital savings

Key features of LMEprecious

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LMEprecious product specificationsUnallocated gold and silver products – can be described as three contract “types”

Platinum

Palladium

Addition of new precious metals• Platinum and palladium futures, with same date structure as aboveOptions for all four metals• First 24 calendar months• Expiration on Last Trading Day of relevant underlying Monthly Future• Realised Variation Margin

Gold

Silver

Future roadmap

Gold Silver

Physical underlying • Lot size of 100 troy ounces• Loco London 995.0 fineness

• Lot size of 5,000 troy ounces• Loco London 999.0 fineness

Trading venues • LMEselect and inter-officeDelivery • Unallocated loco London metal

1. TOM•Trades daily until 12:30 London•Settles next day (T+1)•Delivery margin

2. Daily Future•Daily dates from T+2 to T+25•Merges with monthly future when date equivalent•Realised Variation Margin

3. Monthly Future•First 24 calendar months, then every quarter out to 60th month•Third Wednesday delivery•Realised Variation Margin

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LMEprecious contracts• TOM, SPOT and daily futures out to T+25• Monthly futures out to 24 calendar months, and then quarterly out to 60

calendar months forward. • Offers single open interest space with margining and risk netting

efficiencies, a shared liquidity pool and continuous pricing curve

LMEprecious date structure

TOM(T+1)

SPOT(T+2)

60th

monthfuture

12th monthfuture

NEXT (T+3) T+5 T+25

Outright

Calendar spread

Front monthfuture

2nd month future

Example: monthly calendar

spread (M1 to M2)

Example: “EFP” spread

Implied pricing supported between outrights and spreads

The LME’s rolling prompt date mechanism enables a hybrid structure, reflecting real-world trading

Example: daily calendar spread

(T+3 to T+5)

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Booking methodologyMultiple routes of execution for LMEprecious contracts

24hr phone market LMEselect

LMEsmart

Market traderTraded electronically via LMEselect

Voice-broked trading via LME phone market

Brought onto exchange as cleared futures contracts

Trades flow into LMEsmart for matching and registering

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The capital benefits of clearingBy clearing through LME Clear, LMEprecious participants can realise significant capital efficiencies

Netting portfolio trades rather then keeping trades uncleared OTC1

Example: When traders have to capitalise and exchange two way segregated initial margin and variation margin on two derivatives contracts each:

If cleared by the exchange, traders only have to capitalise and exchange margin against one derivative

CCPOTC

Basel capital requirement savings 2

These savings are driven by a reduction of the Leverage Ratio (LR) and capital ratios denominator / Risk-Weighted Assets (RWA)

Example: A 10 day Margin Period of Risk (MPOR) for uncleared OTC trades compared with a 2 day MPOR for trades cleared by LME Clear

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LMEprecious partnersThe LME’s partners in the development of the new LMEprecious offering

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Market structureA modern and purpose-built market to optimally suit market participants

Booking model• T2 market structure to facilitate easy client access

Fees• Competitive fee schedule compared with existing trading venues• Transparent fee structure

Market making• Quotes will be streamed across the futures curve to create a tight and deep

executable market on screen, in addition to liquidity available over the phone

Margin methodology• Realised Variation Margining, to allow trading profits to be easily realised• Tradeable TOM date, margined on a Contingent Variation Margin (CVM) basis, as it

exists within the T+2 delivery cycle

Margin

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Participation modelEstablished participation routes for both clients and members, with expedited access for existing LME members

To access the LMEprecious

contracts

MEM

BER

AC

CES

SC

LIEN

T A

CC

ESS

Existing LME Member

Not currently an LME member, but would like to trade the new

contracts

Existing client of an LME Member

Not currently a client of an LME Member, but would like to access the LMEprecious

contracts

Talk to us about fulfilling the additional requirements to trade LMEprecious,

including clearing requirements if you are a Clearing Member

Talk to us about LMEprecious membership, with reduced fees and

shareholding obligations

Speak to your LME Member, who can arrange to trade the contracts on

your behalf

We can provide a list of LME Members who offer the LMEprecious contracts– please get in touch with

us to find out more

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SettlementTailored model for integration into settlement cycle for loco London through Aurum

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Would you like to know more?

Questions?Alex Shaw | +44 (0) 20 7113 8137

Kate Eged | +44 (0) 20 7113 8671

www.lme.com/lmeprecious

[email protected]

Additional information

LMEbullionAdditionally, the LME currently work with the London Platinum and Palladium Market to administer and distribute LBMA Platinum and LBMA Palladium prices. This solution is delivered via our custom-built electronic auction platform

http://www.lme.com/lmeprecious

mailto:[email protected]

AppendixDetailed contract specifications

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LMEprecious Gold TOMContract specifications Description

Contract type Futures

Delivery type Physical

Underlying material Loco London Fine Gold, minimum fineness of 995.0

Market segment LMEselect Inter-office market

Execution method Block trade Exchange for risk Trading hours 01:00 – 12.30 London Time 01:00 – 12:30 London Time

Minimum price fluctuation(tick size)

$0.01 per troy ounce $0.001 per troy ounce

Tick Value $1 per lot $0.10 per lot

Lot size 100 troy ounces 100 troy ounces

Order Types Available Outright Calendar Spread

Contract period Single Daily

Price quotation US Dollars and cents per troy ounce

Clearable currencies US Dollar

Termination of trading Last trade submission each day at 12.30 London time

Daily settlement price N/A

Final settlement price Traded price

Settlement procedure Physical settlement one day following termination of trading. Seller transfers unallocated gold to LMEC account at any LPMCL member bank, and buyers receive unallocated gold from LMEC account at any LPMCL member bank

Margining Delivery Margin

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LMEprecious Gold Daily FutureContract specifications Description









Lot size 100 troy ounces 100 troy ounces


Contract period Single Daily from SPOT out to 25 Trading Days forward



Termination of trading Last trade submission for SPOT each day at 18.30 London time

Daily settlement price VWAP of LMEselect trading activity between 18.29/18.30

Final settlement price VWAP of LMEselect trading activity between 18.29/18.30

Settlement procedure Physical settlement two days following termination of trading. Seller transfers unallocated gold to LMEC account at any LPMCL member bank, and buyers receive unallocated gold from LMEC account at any LPMCL member bank

Margining Realised Variation Margin

Merger with Monthly When any Daily Future date is equivalent to a Monthly Future date then contracts merge

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LMEprecious Gold Monthly FutureContract specifications Description










Lot size 100 troy ounces

Contract period First 24 calendar months then every then every Mar, Jun, Sep and Dec up to 60 calendar months forward



Termination of trading Two trading days prior to third Wednesday of front calendar month at 18.30 London time



Settlement procedure Physical settlement two days following termination of trading (i.e. third Wednesday of front calendar month). Seller transfers unallocated gold to LMEC account at any LPMCL member bank, and buyers receive unallocated gold from LMEC account at any LPMCL member bank

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LMEprecious Silver TOMContract specifications Description



Underlying material Loco London Fine Silver, minimum fineness of 999.0




0.5 cents per troy ounce 0.001 cents per troy ounce


Lot size 5,000 troy ounces 5,000 troy ounces


Contract period Single Daily

Price quotation US cents per troy ounce


Termination of trading Last trade submission each day at 12.30 London time

Daily settlement price N/A

Final settlement price Traded price

Settlement procedure Physical settlement one day following termination of trading. Seller transfers unallocated silver to LMEC account at any LPMCL member bank, and buyers receive unallocated silver from LMEC account at any LPMCL member bank

Margining Delivery Margin

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LMEprecious Silver Daily FutureContract specifications Description









Lot size 5,000 troy ounces 5,000 troy ounces


Contract period Single Daily from SPOT out to 25 Trading Days forward



Termination of trading Last trade submission for SPOT each day at 18.30 London time



Settlement procedure Physical settlement two days following termination of trading. Seller transfers unallocated silver to LMEC account at any LPMCL member bank, and buyers receive unallocated silver from LMEC account at any LPMCL member bank


Merger with Monthly When any Daily Future date is equivalent to a Monthly Future date then contracts merge

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LMEprecious Silver Monthly FutureContract specifications Description



Underlying material Loco London Fine Silver, minimum fineness of 999.0







Lot size 5000 troy ounces

Contract period First 24 calendar months then every then every Mar, Jun, Sep and Dec up to 60 calendar months forward



Termination of trading Two trading days prior to third Wednesday of front calendar month at 18.30 London time



Settlement procedure Physical settlement two days following termination of trading (i.e. third Wednesday of front calendar month). Seller transfers unallocated silver to LMEC account at any LPMCL member bank, and buyers receive unallocated silver from LMEC account at any LPMCL member bank


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Disclaimer© The London Metal Exchange (the “LME”), 2016. The London Metal Exchange logo is a registered trademark of The London Metal Exchange.

All rights reserved. All information contained within this document (the “Information”) is provided for reference purposes only. While the LME endeavours to ensure the accuracy, reliability and completeness of the Information, neither the LME, nor any of its affiliates makes any warranty or representation, express or implied, or accepts any responsibility or liability for, the accuracy, completeness, reliability or suitability of the Information for any particular purpose. The LME accepts no liability whatsoever to any person for any loss or damage arising from any inaccuracy or omission in the Information or from any consequence, decision, action or non-action based on or in reliance upon the Information. All proposed products described in this document are subject to contract, which may or may not be entered into, and regulatory approval, which may or may not be given. Some proposals may also be subject to consultation and therefore may or may not be implemented or may be implemented in a modified form. Following the conclusion of a consultation, regulatory approval may or may not be given to any proposal put forward. The terms of these proposed products, should they be launched, may differ from the terms described in this document.

Distribution, redistribution, reproduction, modification or transmission of the Information in whole or in part, in any form or by any means are strictly prohibited without the prior written permission of the LME.

The Information does not, and is not intended to, constitute investment advice, commentary or a recommendation to make any investment decision. The LME is not acting for any person to whom it has provided the Information. Persons receiving the Information are not clients of the LME and accordingly the LME is not responsible for providing any such persons with regulatory or other protections. All persons in receipt of the Information should obtain independent investment, legal, tax and other relevant advice before making any decisions based on the Information.

LME contracts may only be offered or sold to United States foreign futures and options customers by firms registered with the Commodity Futures Trading Commission (CFTC), or firms who are permitted to solicit and accept money from US futures and options customers for trading on the LME pursuant to CFTC rule 30.10.

lmeprecious presentation

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