London Metal Exchange to prohibit use of discretionary order type for all tradeable contracts
The London Metal Exchange (LME) has unveiled its plans to prohibit the use of the discretionary order type for all tradeable Contracts, and the iceberg order type for Cash-Settled Futures Contracts. The Exchange seeks the views of Members and other interested parties on the proposed approach.
LME explains that, with MiFID II having been in force for over two years, and as part of the LME’s proactive approach to compliance, the LME has recently undertaken a post-implementation assessment of its MiFID II arrangements against applicable requirements and market convention. As part of this process, it has been identified that certain discretionary orders for all tradeable contracts, and iceberg orders in relation only to Cash-Settled Futures Contracts, should be prohibited.
The LME intends to prohibit the following order types:
- (a) discretionary orders for all tradeable Contracts, as the structure of this order type poses challenges in relation to the pre-trade transparency requirements set out in MiFIR; and
- (b) iceberg orders for Cash-Settled Futures, as the relatively small lot sizes of these Contracts do not lend themselves to iceberg orders because the undisclosed portion of the order may fall below the EUR 10,000 iceberg requirement set out in MiFIR. Owing to their larger lot sizes, base metal futures Contracts are unlikely to fall below the MiFIR EUR 10,000 iceberg requirement.
Members who contravene the prohibition shall be deemed to have failed to comply with the LME Rules. Members must ensure that they implement appropriate controls to facilitate compliance with this prohibition. Failure to comply with the prohibition or failure to implement appropriate controls may result in a Member being subject to an investigation and disciplinary action by the LME.
This consultation will remain open for responses until 6:00pm (London time) on December 4, 2020.