LME outlines plans to modernize options market

A significant portion of the global non-ferrous futures business is conducted on the LME’s three trading platforms, which together handle roughly $18 trillion in notional value, 178 million lots and four billion tonnes of materially annually, with an open interest high of 1.8 million lots in 2024.

Participants use these contracts to hedge exposure to aluminum, copper, nickel, tin, zinc, lead, molybdenum, cobalt, lithium, steel scrap, rebar, and hot-rolled coil, as well as alumina, aluminum premiums, and alloys. As of December 2024, roughly 1.55 million tonnes of material were held on LME warrant across more than 460 storage facilities in 14 regions and 33 global locations.

The LME said the modernization will be implemented in stages, although the final timetable and proposals will remain subject to further consultation and regulatory reviews.

Here’s an outline of the proposed changes:

Early H2 2026

The LME will first introduce automated expiry for options, with consultation to be published later this year.

“This will simplify and standardize the expiry process, removing the operational risk and complexity of the current manual processes,” the LME said. It will also align the LME with global best practice and provide greater certainty for participants.”

The LME also plans to transition to a different style of option contract. Both changes are planned to take effect at the same time.

“Previous market feedback indicated support to move from the current American expiry style (that can be exercised on any day up to the expiry day) to a European expiry style that only allows the option to be exercised on the expiration date,” the LME continued.

Late 2026

Outright options, quoted in premium terms, will become available for on-screen trading. The LME noted that this will align its platform with other major exchanges.

“Electronic options will provide greater standardization and intraday transparency, reducing barriers to entry and making the market more attractive to a broader range of market participants,” the LME said.

Additional features are expected to debut around the same time, including mass quotes, market-maker protections, and a liquidity provider program. While the LME has not yet detailed how each mechanism will function, these features are typically used across major exchanges to improve on-screen efficiency and transparency.

In general, mass quotes enable traders to submit multiple bids or offers for numerous instruments simultaneously, streamlining quoting activity across markets. Market-maker protections are commonly employed to prevent excessive risk exposure for participants required to quote continuously by automatically cancelling quotes once predefined thresholds are met. Liquidity provider programs generally serve to encourage tighter bid-ask spreads and sustained market depth by incentivizing firms to maintain active quoting.

These measures are intended to support a broader move toward improving on-screen liquidity and intraday price transparency.

In 2027

The LME said it will introduce further enhancements once options become available on screen.

These will include complex strategies, more advanced market-maker protections, and changes to end-of-day pricing.

“The successful introduction of our new trading platform has opened the door to developing the electronic options market at the LME, and today’s paper sets out a clear path forwards for the market,” said Jamie Turner, LME chief operating officer and head of trading, in a statement. “The market will see a steady stream of enhancements, starting with auto-expiry and then outright options on-screen. We know that members and market users are enthusiastic about the plans, and we will work closely with them as we move to delivery.”

You can view the full paper on LME’s website.