LME issues discussion paper on electronic warranting proposal

The London Metal Exchange (LME) has issued a market-wide discussion paper on its proposal to introduce an electronic warranting process that enables customers to make and take delivery of metal, the exchange said on June 15.

The paper — which closes for feedback on 10 July — seeks views from market participants on both the operational and legal implications of the measure. The LME aims to launch the proposed warrant function by the end of October this year.

“We believe warrant dematerialisation will be highly beneficial for our users and for the LME,” Matthew Chamberlain, LME Chief Executive said. “By replacing the physical transferral process with an electronic one, we reduce administrative burden and eliminate operational risk in warrant lodgement and withdrawal.”

The digitisation of the depository function is complex and has involved the input of external counsel from all 14 of the jurisdictions where LME warehouses operate. As a result of this process, the LME has proposed a legal structure that caters for the local areas of all its warehouse locations.

Under the proposed structure, warrants will either be fully electronic, or “immobilised” in jurisdictions where a paper warrant is still legally required and produced, but the warrant itself is printed by the LME and will only remain valid while inside the LME’s depository.

“Having direct oversight of this new depository service also provides us with more control over future development, as well as in business continuity scenarios,” said Chamberlain.

— Annalisa Villa