The head of the clearing house for the London Metal Exchange on Wednesday said interest was growing from major commodity financing banks to use metal as collateral for margins.
Clearing houses require users to put down a deposit, or margin, to ensure they can meet their trading obligations.
Commodities companies often have much of their value tied up in assets such as metals or mines, so enabling firms to use metals to directly meet requirements to fund margins will help them free up capital, said LME Clear Chief Executive Officer Adrian Farnham.
“You can now pledge copper against your copper positions. We have already had a number of members starting to work with us. A big Canadian bank very recently started using warrants as collateral,” he said on the sidelines of the LMEWeek Asia conference in Hong Kong. Warrants are documents of possession. “Maybe five or six different participants have used that system so far. That’s in its infancy but it’s starting to be used, but we’re continuing to tweak and enhance that service.”
The full speech is available at http://www.reuters.com/article/lmeweek-asia-clearing-idUSL8N1IC2T1