LME to launch silver and index contracts
By Kenneth Gooding, Mining Correspondent
The London Metal Exchange, the world's leading metals market, is to launch two new contracts, one for silver and one based on an index.
Making the announcement at the exchange's annual dinner last night, Lord Bagri, chairman, said the index contract would give pension funds and unit trusts "a further tool to diversify their portfolios".
The index contract would also interest hedge funds. "We recognise that funds invest in our market - they invest in all markets. But ours is a complex market which has grown up in a way to satisfy the needs of our primary users," he said.
"In some cases an index contract could channel the interest of financial players away from one or two widely traded metals to the index contract, thereby reducing possible distortions in the underlying individual metals contracts, to the benefit of industrial users of the market."
Lord Bagri said the LME had been testing the idea on many people, including academics and the broker community. It would immediately begin more intensive discussions with potential users and others. "We wish to be certain this contract will work, and work well," he said.
He explained that the index would be based on the metals traded on the LME - aluminium, copper, lead, nickel, tin and zinc.
The last new LME contract, for aluminium alloy, was launched in 1992. Lord Bagri said he hoped trading in both new contracts would begin next year.
The exchange previously had a silver contract, but it was killed off in 1989 through lack of interest. Lord Bagri said preliminary contacts with potential users indicated a new silver contract would be welcomed "because of the faith they have in the exchange's transparency, regulation, method of trading and global delivery points. No other silver contract offers all these benefits".
He said there would be intensive discussions with the silver industry and other potential users.
In a wide-ranging speech, he also answered those in the industry who have suggested the LME has, perhaps unwittingly, encouraged hedge funds and other financial players to undermine metals prices.
He said: "Prices are driven not just by consumption and current supply and demand balances but by perceptions and expectations, and it is the latter that are currently important. LME prices behaved no differently from those of a very wide range of other metals and industrial materials which have no forward or options markets."
The exchange could not dictate what was a "correct" level of prices at a given time. "What is reasonable to expect, and what we strive to deliver, is orderly markets reflecting these diverse influences with as much transparency as we can legitimately provide."
Lord Bagri also dealt with "the unfounded perception" that the LME's regulatory actions tended to favour the shorts in the market. He said the exchange's recent consultative paper on market aberrations showed the LME would come down hard on those holding abusive short positions by using "the sanction of penal margining".
Financial Times |
