The London Metal Exchange

With 130 years of history and over US$ 11 trillion of metal contracts traded in 2010, the London Metal Exchange (LME) is the oldest and largest market for non-ferrous metals.

Metals Traded:

1. Aluminium
2. Aluminium alloy
3. NASAAC (North American Special Aluminium Alloy Contract)
4. Copper
5. Lead
6. Zinc
7. Nickel
8. Tin
9. Cobalt
10. Molybdenum
11. Steel (billets)

History:

The founding of the LME dates back to 1877 when metal traders, buying ores from as far away as Chile and Malaya to service British industry, formed the London Metals and Mining Company and began operations in a former hat shop in London's Lombard Court. The Exchange moved into its current location on Leadenhall Street in 1994.

Evolving with the demand for industrial and base metals, the products traded on the LME have changed over time. While copper and tin have traded on the LME since the beginning, the grade of copper contract was upgraded twice during the 1980s. Tin's present contract began trading in 1989, following a stoppage caused by the collapse of the International Tin Council. Lead and zinc officially began trading in 1920 and although the lead contract has remained virtually unchanged, zinc has required upgrades. Primary aluminium (aluminum) was introduced in 1978 and was upgraded to the current high-grade contract in 1987. Nickel began trading on the LME in 1979 and aluminum alloy in 1992.

Increasing interest in base metals from the financial community led to the development of an index contract, the LMEX, which was introduced in 2000 and has a weighted value based on the six primary metals traded on the exchange. Smaller, cash-settled futures contracts, referred to as LMEminis, were introduced for copper, aluminium and zinc in December 2006.

In 2008, the LME's first ferrous contracts were offered for steel billet, and, most recently, the first minor metal contracts were launched for cobalt and molybdenum in 2010.

Services:

1. Contracts and Trading:

The only organizations permitted to trade LME contracts are its member firms. LME members include public and private companies, as well as brokers that provide the industry with access to the market and its products through LME certified contracts.

2. Transparent Pricing and Price Realization:

Although contracts are negotiated around the world, the 'ring' at the LME is central point for price determination. Traders in the ring use what's known as an 'open-outcry' method (essentially shouting and hand-signals) to determine the price for each contract during 5 minutes bouts each day. The Exchange publishes daily prices, which are used by the physical industry around the world in price negotiations and contracts.

3. Risk Management Tools:

LME contracts, as well as numerous variations and services provided by LME members, provide both buyers and sellers the opportunity to 'hedge' their price risk, gaining protection from future adverse price movements.

4. Warehousing and Delivery:

Although less than 1% of contracts are settled with physical delivery of goods, all LME contracts are backed by physical metals, allowing those in the industry to sell excess stock in times of over supply and source material in times of shortage. In order for this system to function efficiently, the LME has arranged a system for storing and delivering metals. The LME approves and licenses a network of warehouses and storage facilities around the world. Warehouse companies must meet specific criteria before being approved to handle LME branded metals.

5. Branding:

These physical metals that back LME contracts must be LME-registered brands and manufactured by LME-registered producers. More than 450 brands of material from over 60 countries are approved as 'good delivery' against LME contracts. Branded metals must meet the quality, shape and weight requirements defined by the LME contract rules.

6. Regulation:

The LME not only provides an environment for trading, but also has a legal requirement to ensure that business on its markets is done in an orderly manner, thereby, providing protection to investors. The Exchange comes under the direct jurisdiction of the UK Financial Services Authority (FSA) and all members must have a registered office in the EU.

7. Arbitration:

The LME provides an arbitration process in case of disputes. The private dispute resolution system is designed to settle disputes "fairly, expertly and economically, without having to resort to action in the UK or other courts."

Contracts:

All LME contracts are traded in lots that range in size from 1 to 65 metric tonnes depending on the type of metal. Contracts are priced in US dollars, but the LME publishes official exchange rates for contracts settled in pound sterling, Japanese yen and Euros.

Contracts types

1. Futures
2. Options
3. Traded Average Price Options (TAPOs)
4. Swaps (beginning January 2012)

Head Office:

The London Metal Exchange Ltd.

56 Leadenhall St., London, EC3A 2DX, UK

Tel:  +44 (0)20 7264 5555

Fax: +44 (0)20 7680 0505

Website: www.lme.com