LME Clear receives BoE approval for trade-compression service
LME Clear, the clearing house for the London Metal Exchange market, has received approval from the Bank of England (BoE) to launch a trade-compression service, giving members the opportunity to reduce the notional value of their positions and simplify their portfolio management.
“In some cases, LME Clear’s new compression service could reduce the notional value of a member’s positions by as much as 90%. At the same time, it will reduce the number of positions members manage, which increases operational efficiency and minimises risk,” said Trevor Spanner, CEO at LME Clear.
The new post-trade, risk-neutral system will allow members to offset multiple trades that have compatible characteristics into a single trade, or reduce the trades to a net zero position, without altering the risk profile of their portfolio. This may help to lessen the capital requirements placed on members by European regulators.
LME Clear has seen interest from a significant majority of members in using trade compression, which will be offered as an optional service. LME Clear plans to launch the initiative later this year.
About LME Clear
LME Clear is the clearing house for the London Metal Exchange (LME), designed and built in consultation with the LME’s members and launched on 22 September 2014. LME Clear provides enhanced end-to-end processing, with real-time liability, collateral and position monitoring, giving users greater control when managing risk. It also offers an options expiry dashboard and a rationalised suite of daily reports, including fees by trade and account. More than 100,000 matched contracts are cleared every day on the LME Clear system. As a new entrant to the clearing space, LME Clear was EMIR-compliant from launch, with a robust custom-built structure that is well positioned to innovate and keep pace with change.