May 27, 2022

The London Metal Exchange and LME Clear
10 Finsbury Square
London EC2A 1AJ

Submitted by email to: [email protected]

Re: Consultation on OTC Position Reporting for all Physically Deliverable Metals & Accountability Levels for Reportable OTC Positions, Notice 22/145, dated 13 May 2022 (the “Consultation”)1

Dear Sir or Madam:

The Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG”)2 appreciates the opportunity to provide comments to the LME with respect to its Consultation published in Notice 22/145 wherein the LME proposes to:

• Require members to submit, on a weekly basis, details of all OTC positions in aluminum and aluminum alloy, cobalt, copper, lead, nickel, tin, and zinc, including all OTC contracts that are financially settled against an LME reference price, or physically deliverable with LME warrants or warehouse receipts;

• OTC baskets and index trades referencing the specified LME contracts would also be reportable where the LME constituents represent at least 20% of the underlying;

• No minimum threshold would apply; all positions, regardless of size, would be reportable; and

• Members would be required to report positions held by members for their own account as well as for clients (including affiliates) using a format that calls for members to report, in metric tons, the net position for each metal, the beneficial owner of the position, the OTC instrument type, as well as additional detail depending on the type of position (collectively, the Proposals”).

SIFMA AMG has a long and heavily engaged history in supporting fair, transparent and robust exchange trading rules. And we note the Consultation is prompted by the events of March 8 when, in response to a spike in nickel prices, the LME suspended trading in all nickel contracts (not to resume until March 16) and cancelled all trades executed after midnight on that day (the “Nickel Event”).

Our members have expressed serious concerns involving both procedural and substantive aspects of the Proposals, especially as LME’s “independent review” into those events and their aftermath is ongoing (as are regulatory reviews by each of the FCA and the Bank of England). At the core, the Proposals appear both premature, and a mis-direction from the apparent weaknesses in LME’s risk management practices and controls. While it may be that client OTC positions were relevant in the Nickel Event, such positions are the regulator’s purview and not LME’s, and SIFMA AMG strongly recommends that LME urgently prioritize the assessment and remediation of its risk management practices as issues may be identified in LME’s “independent review” and by the FCA and Bank of England.

1 LME Consultation 13 May 2022 Ref. 22/145

2 SIFMA AMG brings the asset management community together to provide views on U.S. and global policy and to create industry best practices. SIFMA AMG’s members represent U.S. and global asset management firms whose combined assets under management exceed $45 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds.