London Metal Exchange finalises warehouse rent caps to tackle queues
By Eric Onstad
LONDON (Reuters) - The London Metal Exchange (LME) finalised further reforms of its warehousing policy on Wednesday by introducing caps on rents and boosting load-out rates to cut waiting times to access metals.
The LME, the world's oldest and biggest market for industrial metals, oversees warehouses where companies that buy metals on its futures market can take delivery of quality-assured supplies if needed.
Big banks and traders that own or owned warehouses and charge rent have profited from letting long queues build up.
The LME said it will implement higher load-out rates on March 1 next year and impose rent caps on May 1 in an effort to remove the financial incentive to maintain or create queues.
Previous reforms had not cut queues fast enough, so further action had to be taken, the LME said in a statement.
"Queues at certain warehouses have persisted and are adversely affecting the functioning of the LME’s market and the trading of its contracts," it said.
Under the queue-based rent cap (QBRC) system, warehouse companies that fail to deliver out queued metal within 30 calendar days would be required to halve the maximum published rent and after 50 days no rent could be charged at all.
The new rules also increase the highest load-out rate from warehouses to 4,000 tonnes per day from 3,000, it added.
The LME, owned by Hong Kong Exchanges and Clearing Ltd <0388.HK>, launched a consultation on its plans in July and then revised the proposals in September to tackle concerns about potential abuse of the QBRC rules by metal owners to get free storage at LME-registered warehouses.
(Reporting by Eric Onstad; Editing by Greg Mahlich)
