The London Metal Exchange (LME) has decided to implement the proposal for a switch from American-style to European-style Metal Options.

The decision was made after LME considered the feedback to the consultation on this matter.

The large majority of respondents agreed with the proposal to transition Metal Options from American style to European style options. Several respondents noted that it was rare for Metal Options to be exercised early. Another highlighted that this transition would simplify the LME’s Metal Options offering and that it is aligned with the proposal to move to automated expiry.

One respondent objected to the proposal on the basis that exercising early could be a helpful option to release cash from a Metal Option position. Another noted that, whilst they do not object to the change, they have a preference for Metal Options to remain as American style options, but did not elaborate on their reasoning.

LME Clear’s Discounted Contingent Variation Margin methodology means that when an ITM Metal Option is exercised early, it does not immediately release the intrinsic value within the Metal Option. Further, the LME and LME Clear are of the view that adopting European style options would simplify the expiry process (by negating the possibility of early exercise), reduce operational complexity, and make the LME’s options market structure and products more familiar (and therefore more accessible) to a broader range of global participants, as a result of which liquidity is likely to increase which in turn would benefit the market as a whole. The majority of feedback received to the Consultation supported this assessment.