Lexicon
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LME (London Metal Exchange)
The LME is one of the leading international future and option markets for raw materials. Contracts for the NE-Metals, copper, aluminium, lead, zinc, nickel, tin and most recently the precious metal silver are traded. The origins of the LME go back to 1571 and Queen Elizabeth I. Metal and raw material dealers used to meet on a regular basis. Finally in 1877 the London Metal Exchange Company was founded. For in-depth information a visit to the LME website (www.lme.co.uk) is recommended.
LME Membership
Over time a multilevel structure of membership has formed on the LME, accommodating the various needs of metal and financial traders.
Category 1 - Ring dealing members: the highest level, they may deal during the ring in the ring and also outside the ring 24 hours in the open marketplace. At the moment there are 15 companies in this category, most of which have strong ties to the raw material sector.
Category 2 - Associate Broker Clearing members: These have all the privileges of Ring Dealing members except they are not allowed to deal in the ring.
Category 3 - Associate Trade Clearing Members: These are not allowed to conclude contracts with customers, nor deal in the Ring, but they may clear their own exchange business.
Categories 4 – 7: these have no major influence on the trading activities of the LME.
LME Official Price
Based on the LME settlement price the various prices for the different future contracts. The standard contract with the highest market liquidity runs for 3 months. The longest contract is for 27 months. The official Future Price is based on the settlement price with the addition or subtraction of the Contango or Backwardation.
LME Settlement Price
The last price, not covered by a bid on the offer in the cash market (for immediate delivery), at the end of the second ring in the morning session, i.e. the price of the seller at the close. This price, which is officially announced on the LME floor is valid for 24 hours and is the accepted reference price for the prompt delivery of the metals.
LME trading day
The LME is a 24 hour market. Certain members (see LME membership) are authorized to complete contracts with customers day and night and are not restricted to floor trading. Floor trading begins at 11.40 and each metal is traded for five minutes. At 12.20, when all metals have been traded once, there is a 10 minute break, until 12.30 when all metals are traded once more for five minutes. This second phase is considered the more important since then the Settlement and the Official Prices are determined. After announcement of the Official Prices the kerb trading begins. During the kerb all eight contract metals are traded simultaneously. At 15.10 the afternoon session begins, identical to the morning session with the exception of the Official Prices.
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