All Members, warehouse companies and their London agents

Transcription

1 To: All Members, warehouse companies and their London agents Ref: 18/106 Classification: Brands Warehousing Date: 16 April 2018 Subject: Rusal Brands: Warranting Metal Summary 1. Following the temporary conditional suspension on placing Rusal metal on Warrant announced by Notice 18/103, this Notice sets out the procedure to be followed by metal owners intending to warrant Rusal metal on the LME from 17 April It also provides an update on the LME s market engagement on this topic to date. Defined Terms 2. Capitalised terms not otherwise defined in this Notice shall have the meaning ascribed to them in the LME Rulebook or in Notice 18/103, as the context permits. Background 3. As detailed in Paragraph 20 of LME Notice 18/103, on 10 April 2018, the Special Committee issued a direction that with effect from UK time on 17 April 2018, any metal owner wishing to place metal of any Rusal Brand on Warrant may only do so where the metal owner is satisfied, and can demonstrate to the reasonable satisfaction of the LME, that it will not involve any breach of the Sanctions. This must include written confirmation that it will not involve a breach of the Sanctions, including that certain conditions listed in paragraph 15 of LME Notice 18/103 have been met, and the LME may require information from the metal owner in order to satisfy itself that the conditions have been met. 4. After the Effective Date, a warehouse company should only accept Rusal Brand metal onto Warrant once it has received a confirmation from the LME that it is satisfied that the conditions above have been met. Examples of what information the LME may request to satisfy itself that the relevant conditions have been met are set out in the table below. THE LONDON METAL EXCHANGE 10 Finsbury Square, London EC2A 1AJ Tel +44 (0) Registered in England no Registered office as above. LME.COM

2 Condition (a) such dealings do not involve any blocked persons (as defined in the Sanctions) directly or indirectly; (b) the metal was produced and supplied by Rusal prior to 6 April 2018 and Rusal no longer had any property interest in the metal after that date; and (c) neither Rusal nor any blocked persons (as defined in the Sanctions) would contribute or receive funds, goods or services in connection with any dealings in the metal. Example evidence from Metal Owner LME checks on metal owner and confirmation from metal owner; LME may also request such information as it considers necessary (e.g. purchase agreement) Certificate of analysis & confirmation from metal owner; LME may also request such other information as it considers necessary LME checks on metal owner and confirmation from metal owner; LME may also request such information as it considers necessary (e.g. purchase agreement) 5. This Notice does not purport to constitute legal advice or guidance for Members or other market participants on whether or not any given action is permissible for them and nothing in this Notice should not be relied on by any person. Members and other market participants should always seek their own legal advice. Warranting Procedure 6. After the Effective Date, the procedure that is required for the LME to provide the confirmation stated in paragraph 3 above is as follows: (a) The metal owner must complete the spreadsheet attached at Appendix 1; (b) A director or officer of the metal owner s company must sign a letter in the same form and content as the template letter attached at Appendix 2; and (c) All information sent to the LME and all relevant correspondence must be sent to the following address: rusalwarranting@lme.com. 7. Once the LME has received this information, it will consider it and either (a) provide written confirmation to the metal owner that it has seen no evidence that placing the relevant metal would involve a breach of the Sanctions, (b) request further information, or (c) refuse to provide the confirmation because it believes that there is a risk of Sanctions infringement. 8. The confirmation contemplated by paragraph 7(a) above should be provided to the warehouse company as part of the warranting instructions. Warehouse 2

3 companies should only accept Rusal metal onto Warrant where they have received such an instruction. 9. The LME will aim to process warranting requests as soon as reasonably practical. However, please note that the approval procedure may take time and any metal owner wishing to place metal of any Rusal Brand on Warrant should contact the LME as soon as possible. Update on Market Discussions 10. In establishing the temporary conditional suspension set out in Notice 18/103, the LME had four primary intentions. 11. Firstly, and most importantly, the LME was seeking to ensure that the metal delivered on its market did not trigger Sanctions concerns for its Members or their Clients. In particular, the LME s preliminary discussions with the market had indicated that users were comfortable to take receipt of metal of Rusal Brands which had been supplied by Rusal prior to 6 April 2018 ( Pre 6-April Metal ). However, those discussions also suggested that users were not comfortable to take receipt of metal of Rusal Brands which had been supplied by Rusal on or after 6 April 2018 ( Post 6-April Metal ). Subsequent discussions with the market have confirmed the LME s initial assessment of the position. Accordingly, the LME believes that, with the safeguards of Notice 18/103, its market will remain accessible to Members and Clients. 12. Secondly, the LME was concerned to ensure that the metal delivered on its market is of a sufficiently high standard to ensure that the LME aluminium price (which, by definition, should correspond to the value of the Warrants delivered in settlement on the LME market) remains representative of the requirements of global aluminium buyers, and hence that the Exchange s prices remain the global reference. The LME notes media speculation that, as a result of the Sanctions, the proportion of Warrants represented by Rusal Brands may increase. The LME concurs that this is a plausible scenario. However, by ensuring that all Warrants relating to Rusal Brands are composed of Pre 6-April Metal, the LME does not believe that those taking delivery on the LME will be burdened with unusable metal. As set out above, the Exchange has not heard views which contradict its own assessment that Pre 6-April Metal is currently in no way subject to Sanctions or otherwise undesirable as long as the conditions imposed by the Exchange in respect of such metal are respected which the Exchange will carefully monitor to protect the integrity of metal accepted by it. It will always be the case on the LME market that certain brands command a premium to others; however, as long as the least desirable LME brand still represents generally acceptable metal, then the LME price will continue to act as the global reference price. The LME has not received representations from any user that Pre 6-April Metal would not be acceptable to them. 3

4 13. Thirdly, the LME wished to ensure that short position holders, if intending to physically deliver by means of warranting their stocks of off-warrant Rusal metal, would not be adversely impacted. By ensuring the continued warrantability of Pre 6-April Metal, position holders will be able to deliver such material against their positions. If the warrantability of Pre 6-April Metal were compromised, then short position holders may encounter difficulty in settling those positions, with a consequent impact on market orderliness. And, given that Pre 6-April Metal appears currently to be generally acceptable to aluminium users, this approach does not compromise the integrity of the LME s market or its pricing. 14. Fourthly and finally, the LME sought to avoid a situation whereby Pre 6-April Metal had to be warranted by a particular date, or become unwarrantable. This could, in the view of the LME, have resulted in a very significant inflow of metal onto Warrant which would not otherwise have occurred. By allowing warranting of Pre 6-April Metal on an indefinite basis (if accompanied by appropriate documentation confirming its status as Pre 6-April Metal), the LME has sought to alleviate this potential concern. 15. The LME notes media reports as to the warranting of Rusal Brand aluminium Warrants, and the cancellation of Warrants relating to other brands of aluminium. Such behaviour may be entirely rational; if certain brands trade at a premium, then it would be logical for metal owners to withdraw such metal and sell it in the physical market, while warranting metal which did not command a premium. However, the LME does not believe that such behaviour threatens the effectiveness of the LME s price discovery mechanism provided that all metal is generally acceptable to users (including Pre 6-April Metal), the Warrants delivered against LME Contracts will continue to facilitate effective price discovery. 16. So in summary, the LME continues to believe that its temporary conditional suspension represents the best balance between the various interests of its market, as set out in the four factors above. The LME will continue to keep all of the above factors under review, and may make further adjustments as required. 4

5 17. If anyone has any questions about anything contained in this Notice, please Matthew Chamberlain Chief Executive Officer cc: Board directors Aluminium Committee Physical Market Committee User Committee 5

6 Appendix 1 Spreadsheet 6

7 REFERENCE NO. DATE OF REQUEST METAL OWNER METAL OWNER COMPANY NUMBER COUNTRY OF INCORPORATION OF METAL OWNER METAL CONTACT: WAREHOUSE WAREHOUSE LOCATION BRAND OF METAL METAL TONNAGE DATE OF WARRANT ISSUANCE CHECKLIST (insert date) CERTIFICATE OF ANALYSIS CHECKLIST (insert date) SIGNED CONFIRMATION LETTER LME TO COMPLETE LME TO COMPLETE LME TO COMPLETE

8 Appendix 2 Template Letter to the LME 7

9 London Metal Exchange 10 Finsbury Square London EC2A 1AJ By only [DATE] Dear Sirs Rusal Brands: Request to Warrant Metal 1. We write in relation to LME Notices 18/103 and 18/106 and the Russia-related sanctions imposed by the Office of Foreign Assets Control on 6 April 2018, involving the designation of United Company Rusal ("Rusal") as a Specially Designated National under Executive Order and and the Ukraine-related Sanctions Regulations (the "Sanctions"). Specifically we request that the LME confirms that the metal detailed in the attached spreadsheet may be placed on LME Warrant (the Metal ). 2. We confirm that placing the Metal on LME Warrant will not involve any breach of the Sanctions. In particular, but without limitation, we confirm that: a. such dealings do not involve any blocked persons (as defined in the Sanctions) directly or indirectly; b. the Metal was produced and supplied by Rusal prior to 6 April 2018 and Rusal no longer had any property interest in the metal after that date; and c. neither Rusal nor any blocked persons (as defined in the Sanctions) would contribute or receive funds, goods or services in connection with any dealings in the Metal. 3. We await a response from the LME as contemplated by Notice 18/106. Yours faithfully [Signed] [FULL NAME AND TITLE OF AN OFFICER OF METAL OWNER COMPANY]