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THE LONDON METAL EXCHANGE
10 Finsbury Square, London EC2A 1AJ | Tel +44 (0) 20 7113 8888
Registered in England no 2128666. Registered office as above.
161ca.com
To:
All Members and other interested parties
Ref:
19/256
Classification: General updates
Trading
Date:
12 August 2019
Subject:
POST-TRIAL DATA ANALYSIS OF ELECTRONIC CLOSING
PRICES AND TRADE-AT-SETTLEMENT ORDER BOOKS
Summary
1. The London Metal Exchange (the “ LME ” or the “ Exchange ”) is seeking feedback
from Members, Clients and other interested parties in respect of the datasets
appended to this Notice, which were gathered during the electronic Nickel Closing
Price trial. In order for market participants to fully assess the effectiveness of the
trial, the LME has extended the period of market engagement to allow
stakeholders to provide further input based on the data gathered.
2. The presentation in the Appendix to this Notice sets out the key interim data points
that the LME has drawn from the trial. This data represents a subset of the data
that is available, and the LME would welcome feedback from market participants
on other datasets that it would be useful for the LME to consider. At this stage, no
definitive conclusions have been drawn from the data in the Appendix, pending
LME extending the period for market participants to provide feedback.
Defined terms
3. Terms not otherwise defined herein shall have the meaning ascribed to them in
the Rules and Regulations of the LME (" Rulebook ").
Background
4. LME Notice 17/302, dated 7 September 2017, provided market participants with
the summary of feedback received in response to the LME's Discussion Paper
on Market Structure, and published the LME's strategic pathway (" Strategic
Pathway ”). The Strategic Pathway proposed that LME would trial electronic
pricing for a range of prices.

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5. With regard to price discovery, there were a number of responses to the
Strategic Pathway from market participants who are highly supportive of
procedures used on the Ring to determine the Official Prices (discovered on the
2nd Ring close, and largely used by physical participants) and Closing Prices
(used primarily for end-of-day valuation and margining purposes). However,
there were also a number of respondents who expressed a preference
specifically around an electronic pricing methodology for determining the
Closing Prices for consistency with most other markets which they trade. The
161ca.committed to retaining discovery of the Official Prices in the Ring, but
acknowledged that there existed an opportunity to consider an evolution of the
Closing Price discovery mechanism.
6. It was therefore stated that the LME would undertake an exploratory period
Thus the Closing Prices for a subset of the LME's base metal contracts would
be derived from an electronic mechanism, supported by electronic TAS
functionality.
7. The trial (LME Notice 18/195) commenced on 18 March 2019, and concluded
on 18 June 2019. During the trial, the 3-month Nickel Closing Price was
determined exclusively by reference to an LMEselect pricing window via the
volume weighted average price (“ VWAP ”) functionality. In parallel, the LME also
introduced trade-at-settlement (“ TAS ”) functionality for the same contract. The
LME would like to thank its Members, and their clients, for participating in this
trial, and to thank all market participants for their ongoing engagement with the
trial.
8. This exploratory period took place between 18 March 2019 and 18 June 2019
for the 3-month Nickel Closing Price, after which discovery of this price returned
to the Ring on 19 June 2019. TAS functionality for the 3-month nickel order book
continue to be available.
Key Data Points
9. Prior to the commencement of the trial, the 161ca.committed to reviewing and
assessing the full impact of the trial based on its observations, as well as
feedback received from market participants. The deadline set for the latter (in
LME Notice 19/031) was 2 July 2019. However, no formal feedback was
received during this period. As a result, the LME is extending this period to 30
September 2019. Market participants are therefore asked to submit any
feedback in relation to the trial to market.engagement@161ca.com by this revised
date.
10. In order to help market participants with this, the LME has proposed the
presentation in the Appendix to this Notice, which covers key data points that
the LME believes are useful to highlight in relation to the trial.

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Next Steps
11. The extended market engagement will close on 30 September 2019.
12. Following the end of the extended market engagement period, the LME will
review of data from, and feedback in relation to, the trial. This data will be
considered against the factors set out in paragraph 8 above, and in light of any
additional considerations that the LME determines to be relevant. The LME will
Subsequently inform the market by Notice of its findings and intended course of
action in relation to the 3-month Nickel Closing Price. The LME's assessment of
the 3-month Nickel trial will also consider whether it would be beneficial to
conduct further trials in relation to other Nickel Prompt Dates and / or other
metals.
13. Should the Closing Price discovery for any 3-month contract move to an
electronic process more permanently, the LME will then carefully consider the
potential next steps, such as trialling an electronic Closing Price process for
Carries and other Prompt Dates. The LME believes this would require significant
further input from market participants due to the complex nature of the LME base
metals date structure, and the fact that a large portion of Carry trades are done
through both the Ring and inter-office venues. In this instance, the LME would
engage with market participants on how to approach a trial period for
Determination Carries and all other non 3-month Prompt Dates.
14. If the recommendation is that the current process for setting the Closing price in
the Ring should continue, then no further immediate action will be taken.
15. It is expected that this decision will be made during Q4 2019 and will be
communicated to the market accordingly.
16. Until a decision is reached regarding the trial, the LME remains fully committed
to optimising its existing pricing and trading infrastructure. As such, the LME is
today also issuing a Notice (LME Notice 255) regarding the extension of
afternoon Kerb trading in light of the successful zinc trial that took place earlier
this year. It should be noted, however, that the changes being implemented as
a result of the zinc trial do not prejudge the LME's decision regarding the
electronic Closing Price trial.
Questions
17. Please submit any questions relating to this Notice or to the trial more generally
to market.engagement@161ca.com.

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James Cressy
Chief Operating Officer
cc: Board directors
User Committee
All metal committees
Ring Dealers Committee
Traded Options Committee
Warehousing Committee
Physical Market Committee

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SETTING THE GLOBAL STANDARD
LME Notice 19/256 – Appendix
Electronic Closing Price Trial
TAS & VWAP-data analysis
12 August 2019
Classification: Public

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Contents
Section Title
1.
Executive summary
2.
Background
3.
Volume data
4.
Participation data
5.
Price data

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Executive summary

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Executive summary
a – “C code” trades are agreed prior to the Closing Price being discovered, but with the price linked to the as yet unknown Closing Price,
often given as “market-on-close” orders
During the electronic Closing Price trial (18 March 2019 to 18 June 2019) LMEselect was the exclusive venue for determining the 3-
month nickel Closing Price using a volume weighted average price (VWAP), coupled with the introduction of trade-at-settlement (TAS)
functionality
The information contained within this presentation is a sub-set of the available data, which the LME believes provides useful insight to
the electronic Closing Price trial, though is not a complete representation of all relevant data
While overall volumes did increase during the trial period, the volume of contracts in directly linked to the Closing Price reduced modestly
(TAS and “C code” a type trades), while those directly relating to price discovery (VWAP or Ring) increased
Participation during the trial in the VWAP period was good, due to the existing broad access to LMEselect by participants
Participation in TAS was mixed, with 21 Members participating in total, though only 9 on average each day. Client participation in TAS
was limited (we understand largely due to the functionality not being offered by some Members and ISVs), but grew significantly during
the trial
As can be seen from the volume data, there was a shift during the trial (between VWAP, “C code” and TAS volumes) which may be as a
result of trading behaviour starting to change
The data does show some price divergence between a Ring discovered Closing Price, and prevailing prices on LMEselect at the time,
Although over a short timeframe after the Closing Price discovery, this divergence reduced
The temporary nature of a trial means market activity may not have reflected what would happen if the VWAP discovered Closing Price
process was permanent. As such data should be interpreted cautiously
Further comment is welcomed on the trial, both on the data contained within the presentation, and any other relevant information. To
accommodate this, the LME has extended the period for feedback from market participants until 30 September 2019. This feedback will
be an important factor in the decision making progress

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Background

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Background
Scope of the trial
Approach
Process
Closing
Prices
3M outright
3 month trial
18-Mar
2019
18-Jun
2019
Market engagement
Data to be published
Reverted to Ring
Decision
on future
Closing Price
discovery
Volume-weighted average price
("VWAP") discovering the
Closing Price 5:00 pm – 5:02 pm
Trade-at-settlement ("TAS")
book available all day until
5:02 pm
Closing
Price
access

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Pros
✓ Broader direct participation in price discovery
✓ Eliminates price divergence between venues
✓ Standardises and simplifies the price discovery
process compared to other futures markets
✓ Potentially increased market depth / liquidity on
LMEselect
✓ Price discovered via the most liquid of the LME ’s
venues for the 3-month price
Cons
ₓ Potentially reduces capability for Clients to obtain
guaranteed Closing Prices
ₓ Concerns of increased price volatility with
increased algorithmic trading involvement in the
Closing Price
ₓ Loss of the Ring “brand value” if it is no longer the
venue for price discovery
ₓ Electronic settlement alone is not a “silver bullet”
for attracting increased electronic participation
ₓ Potentially challenges the viability of the Ring
business model for some, which could impact
liquidity
There are strong arguments for and against establishing 3-month Closing Prices
electronically using LMEselect
Key considerations

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Volume data

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Mixed overall impact on volumes
Overall volumes
a: on 24 Dec and 31 Dec the Closing Price was established at 14:00, which is reflected in the data
b: Market trades (trades at current market price excluding member give-up and administrative trades)
c: LMEselect Member and Client, total of all 3-month “C code”, TAS, and Ring or VWAP (when used for price discovery) trades
d: LMEselect Member and Client, combination of “C code” and TAS trades
Pre-trial
Trial period
Market stability and orderliness
Total Ring nickel ADV
ADV indirectly linked to
3M nickel close d
3,460
Fully maintained
3,301
526
(of which 222 TAS)
Total nickel 3M ADV
(all venues b )
15,435
16,711
8%
-5%
-twenty three%
Total nickel ADV
(all venues)
73,123
79,279
8%
ADV directly involved in
3M nickel Closing Price discovery
683
130
332
155%
Total ADV linked to
3M nickel close c
810
859
6%
For the purposes of all data analysis on the following slides, the periods are defined as:
Pre-trial period:
14 Dec 2018 – 15 Mar 2019 (63 days) a
Trial period:
18 Mar 2019 – 18 Jun 2019 (63 days)

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10
130
332
400
344
253
683
288
337
284
242
238
122
210
384
0
100
200
300
400
500
600
700
800
900
1,000
Month 1
Month 2
Month 3
Pre-trial
Trial
Trial
AD
V
TAS
3M "C code" trades
VWAP
Ring
Price discovery vs. price participation
Trial showed evolution of VWAP and TAS
Indirectly linked to
Closing Price
Directly involved in
Price discovery
• Members regularly net their Closing Price orders to mitigate execution risk. Only a netted amount is
directly involved in price discovery and more trades are “linked to Closing Price”, booked as “C code”
trades
• Netting is also believed to have occurred during the trial, though direct participation in the price
discovery process clearly increased (see slide 12)
• Overall, the total of volume either directly or in directly linked to the Closing Price grew modestly (6%).
However, there were trades during the VWAP period (17: 00-17: 02) which were taking place in
LMEselect during the pre-trial period, that are not reflected in this graph as they were not linked to the
Closing Price discovery

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Participation data

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Pre-trial
Trial
Member activity
Ring
VWAP
# of direct participants: total
9
326
# of direct participants: average per day
4.4
39
# of direct participants: min in a day
2
13
# of direct participants: peak in a day
9
66
Direct participation in the price discovery process grew as expected, due to wider
connectivity to LMEselect compared to number of Ring-trading Members
Participation – price discovery
• Direct participation in the VWAP is measured as the number of Tag 58s (a unique electronic
identifier) trading during the VWAP period. As such, it may record multiple traders within each
trading firm
• The Ring process allows Ring trading Members to funnel many indirect participants' interests into
the Ring discovered Closing Price
• More participants were directly involved in the LMEselect discovered VWAP Closing Price

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Pre-trial
Trial
Member activity
"C code"
TAS
"C code"
Total
# of Members: total
34
twenty one
27
33
# of Members: average per day
12
9
6
11
# of Members: min in a day
3
4
2
6
# of Members: peak in a day
19
12
15
17
% volume via LMEselect GUI
n / a
74%
n / a
n / a
% volume via FIX API
n / a
26%
n / a
n / a
Member usage of trades in directly linked to the Closing Price was relatively
consistent
Participation – linked to Closing Price
• Overall there was similar participation from Members in trades in directly linked to the Closing
Price (but not directly contributing to it) before and during the trial
• The relatively high portion of volume from the LMEselect GUI (which is only available to
Members), shows that access to the TAS market was somewhat restricted as some Members and
ISVs were not able to offer it due to the trial nature of the VWAP process

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Indirect price participation
Additional commentary
• Ahead of the trial, some Members were concerned that “guaranteeing the close” during the trial
would be significantly impacted. Informal feedback thus far has been mixed, though relatively
limited, with some participants reporting no change to their processes, others reporting
improvements in their access (due to transparency of TAS) and others finding it more challenging to
get trades guaranteed against the Closing Price – the LME would welcome further feedback on this
matter in particular
• During the trial, the TAS market began with only natural order flow; with no liquidity providers active.
It was often not quoted or one sided for the majority of the day. From late April, liquidity providers
began trading, and showed good daily liquidity by the end of the trial
• Use of TAS grew significantly during the trial, though the use of “C codes”, and direct trading in the
VWAP fell as business processes appeared to adjust
• Due to the relative newness of TAS contracts, many Members were not able to give access to
Clients during the trial, and most ISVs were also not able to offer the TAS contract

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Price data

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Limited impact to traded ranges on LMEselect around the Closing Price discovery
period
Price ranges
• Average LMEselect price ranges did not appear to be significantly different between the pre-
trial and trial periods
• Price range narrowed between month 1 and month 3 of the trial
Pre-trial l
Trial l
$ 34.76
$ 36.75
$-
$ 10
$ 20
$ 30
$ 40
$ 50
$ 60
Month -3
Month -2
Month -1
Month 1
Month 2
Month 3
A
v
erage range
Traded price range
16: 59-17: 00
17: 00-17: 02

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Overview of analysis on pre-trial price data
Price discovery
• An occasional criticism of the Ring discovered Closing Price is that it is not representative of the
whole market (ie there is price divergence between venues). This has been analysed by
comparing the Ring discovered Closing Price to the “available price range”, which we define as –
during a specified time period – the range of the lowest top-of-book bid to the highest top-of-book
offer on LMEselect. This definition captures the range of top-of-book liquidity, a wider range than
that captured by only those prices which traded
• The VWAP was used as the Closing Price at all times during the trial. By definition, the VWAP
Closing Price is always within the range of traded prices on LMEselect
• 40% of Ring discovered Closing Prices were outside of the “available price range” on LMEselect
during the Closing Price period (16: 59-17: 00), but this shrunk to 8% when widening the period
slightly (16: 59-17: 02), suggesting that price divergence is generally short lived
• On average the first 3-month quote in the Ring was 20 seconds before the end of the trading
session. This is due to the Ring discovered Closing Price being defined as the last traded price,
thus Ring traders “go late” in order to accurately target the Closing Price, which may be a factor
contributing to price divergence

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Ring discovered Closing Price versus the LMEselect “available price range”
during the Ring price discovery session 16: 59-17: 00
Price discovery
• 40% of Ring established Closing Prices were outside of the “available price range”, with a
maximum deviation of $ 45
-30
-20
-10
0
10
20
30
40
50
14/12/2018
14/01/2019
14/02/2019
14/03/2019
US
D
Closing Price vs. LMEselect "available price range" 16: 59-17: 00

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Price divergence is generally short-lived, seen by looking at “available price
range "during wider 16: 59-17: 02 period
Price discovery
• 8% of Ring Closing Prices were outside of the low-bid to high-offer range, with a maximum
deviation of $ 20
-30
-20
-10
0
10
20
30
40
50
14/12/2018
14/01/2019
14/02/2019
14/03/2019
US
D
Closing Price vs. LMEselect "available price range" 16: 59-17: 02

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© The London Metal Exchange (the “LME”), 2019. The London Metal Exchange logo is a registered trademark of The London Metal Exchange.
All rights reserved. All information contained within this document (the “Information”) is provided for reference purposes only. While the LME
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representation, express or implied, or accepts any responsibility or liability for, the accuracy, completeness, reliability or suitability of the Information
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the Information or from any consequence, decision, action or non-action based on or in reliance upon the Information. All proposed products
described in this document are subject to contract, which may or may not be entered into, and regulatory approval, which may or may not be
given. Some proposals may also be subject to consultation and therefore may or may not be implemented or may be implemented in a modified
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proposed products, should they be launched, may differ from the terms described in this document.
Distribution, redistribution, reproduction, modification or transmission of the Information in whole or in part, in any form or by any means are strictly
prohibited without the prior written permission of the LME.
The Information does not, and is not intended to, constitute investment advice, commentary or a recommendation to make any investment
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LME and accordingly the LME is not responsible for providing any such persons with regulatory or other protections. All persons in receipt of the
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