New for 2015

LME Clear’s new compression service can reduce the notional value of a member’s position by as much as 90%, helping members to reduce the impact of new Basel III capital requirements.

The service provides unilateral risk-neutral post trade compression for Forward and Monthly Average Future contracts resulting in the simultaneous termination of the old contracts and creation of new contracts.

Trade Compression Service

The service launches on 23 November 2015.

Delivering efficiency and flexibility Compression offers several useful benefits to members:• Reduction in the overall notional value and Basel III capital

requirements without changing the overall risk profile of the compressed contracts

• Simplification of portfolio management by reducing the number of individual positions in the portfolio, while maintaining the same risk profile. This requires fewer reconciliations and delivers more operational benefits

• Providing a faster and more efficient auction process in the event of a default.

The mechanics of how it works Compression is an optional service available to all members on house and client positions. The service is available on LME forwards and Monthly Average Futures with the same economic terms, account/client, metal, prompt date, currency and contract type.

Members select two or more gross positions linked to the same account to be compressed into a smaller number of positions or to create a zero position. A new trade date is created using the date of compression.

The price of the compressed position is calculated by the algorithm holding the contingent variation margin (CVM) on the original positions constant. Therefore, the CVM post-compression remains unchanged.

The operational processThere are three options for using the compression service:• Automated compression: all trades in an account are automatically

compressed at the chosen frequency• Manual compression: trades to be compressed are selected via the

LMEmercury GUI• File-based compression: a file containing trades for compression is

sent to LME Clear (only available in certain circumstances).

For more information about the compression service, and to discuss which option may work best for your business, please contact LME Clear at lmeclearing@lme.com or telephone +44 (0)20 7264 5555 or lme.com/clear.

The flow of the compression service

Members manually select trades in account, create a unique reference ID, per individual client in OSA, which is then included on a selection of contracts to be compressed.

LMEmercury runs a Compression Proposal to illustrate the outcome of the compression.

The reference ID determines which trades are to be compressed. Trades missing references will be omitted from the compression run.

To proceed with the compression, approval is required for it to be processed on the day. Absence of approval will prevent compression from proceeding.

Compression will run at beginning of next business day.

Member can cancel the compression via the LMEmercury GUI.

Once compressed, members receive a compression report detailing the contracts which have been terminated and created from the compression service. Members and clients then update their books and records to reflect the terminated and newly created contracts.

Automated CompressionManual Compression

The proposal is run at the beginning of each business day.

Compression will run at beginning of next business day.

If the Member agrees with the proposal and wishes to proceed with the compression then no further action is required.

Member can cancel the compression via the LMEmercury GUI.

Position Account Compression Method Frequency Selection

Automatic Manual

House Auto / Manual / File Daily / Weekly / Monthly Weekly / Monthly

Net Omnibus Account** Manual / File Not available Weekly / Monthly

Individually Segregated Account Auto / Manual / File Daily / Weekly / Monthly Weekly / Monthly

** For client contracts to be compressed, members use a unique reference ID/number per trade.

LME CLEAR LIMITED Tel +44 (0)20 7264 5555 Fax +44 (0)20 7680 0505 lmeclearing@lme.com lme.com/clear

Nothing in this document constitutes an offer or a solicitation of an offer to buy or sell any security or other financial instrument or constitutes any investment advice or recommendation of any security or other financial instrument. To the best of LME Clear’s knowledge and belief, statements made are correct at the time of going to press. All such statements and all opinions expressed herein are published for the

general information of readers but are not to be taken as recommendations of any course of action. LME Clear accepts no liability for the accuracy of any statement or representation. LME contracts may only be offered or sold to United States foreign futures and options customers by firms registered with the Commodity Futures Trading Commission (CFTC), or firms who are permitted to solicit and accept money

from US futures and options customers for trading on the LME pursuant to CFTC rule 30.10.

© LME Clear Limited. A private limited company, registered in England no 07611628. A member of HKEx Group. LME Clear is a Recognised Clearing House authorised and regulated in the UK by the Bank of England.