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The London Metal Exchange said it would crack down on over-the-counter trading of its contracts by some of its largest financial customers, in a bid to boost revenues.
The 140-year-old LME, the world’s center for metals trading, is proposing an OTC fee to be paid by financial institutions for each trade they make with their own clients using an LME contract.
Some of the largest LME customers such as JP Morgan have built up thriving OTC trading desks over the past few years, which allow their customers to buy and sell LME metals. The LME says this causes them to lose out on revenue from each trade.
The new fee is set to bring the Hong Kong Exchanges and Clearing-owned LME around $10m in extra revenue a year, according to internal estimates.
The LME said:
The aim of the financial OTC booking fee proposal is to rebalance the current disparity between the fees paid by members servicing their clients with an LME client contract and those servicing their clients with an OTC contract based on LME prices at a substantially reduced fee. In addition, it aims to provide a fair payment to the LME for the use of the intellectual property in its prices.