(Updates Sept. 28 story with detail throughout)
Sept 29 (Reuters) — The London Metal Exchange’s clearing
house will cut the minimum size of its default fund, which
exists to cover outstanding debts of members who default on
payments, to $1.012 billion from $1.031 from Oct. 2.
The reduction in the fund’s minimum size announced on
Thursday, the second within 31 days, suggests less volatile
trading of industrial metals such as copper, aluminium, zinc,
lead and nickel.
In August LME Clear announced changes to the way it sets the
minimum level of the default fund.
«The new methodology links the minimum Default Fund size to
the recent level of risk, being set as a percentage of the
average initial margin over the previous six months,» LME Clear
said in a notice.
Initial margin is a percentage of the purchase price that
members must deposit with LME Clear for their trades. It
typically changes when price of the metals traded on the LME are
more or less volatile.
In the event of a member default, LME Clear takes over the
member’s portfolio and sells it. Any losses are initially offset
against margins paid by the defaulter, and then by LME Clear’s
default fund.
(Reporting by Harshit Verma in Bengaluru and Pratima Desai in
London; Editing by Jan Harvey)