By Eric Onstad and Pratima Desai
LONDON (Reuters) -The London Metal Exchange (LME) will raise its trading and clearing fees by an average 13% from next year, but nearly double charges for OTC (over-the-counter) deals in an effort to force them onto the exchange.
The hikes are the first in four years, the LME said on Wednesday, as the Hong Kong Exchanges and Clearing Ltd owned exchange seeks a balance between boosting flagging volumes and lifting its income amid inflation.
Trading volumes at the world's largest and oldest forum for trading metals took a hit, especially in nickel, after a chaotic spike in prices in March last year that forced the LME to shut the market and cancel billions of dollars in deals.
Volumes at the exchange have recently improved, but a full recovery will take time, market users have said.
Part of the problem during the nickel crisis in March 2022 was the massive short OTC nickel positions, which the exchange said it did not know about.
The LME will hike its financial OTC booking fee to $2.24 from $1.14 to create a "level playing field" between those who book OTC contracts with financial institutions that reference LME prices and trading on the exchange.
"The OTC hike reflects their aim to stop OTC and incentivise trade on the LME," a senior metals trader said. "They think they are entitled to a share of members' profits, which of course is not the right way to think about it."
In an attempt to encourage fund trading and help boost volumes, the LME said it is planning "discounted fees for clients who reach certain volume thresholds".
Fees will be frozen for short-dated "carry" fees and trading on the LME trading floor, one of the only open-outcry venues left in the world, the 146-year-old exchange said.
"These demonstrate our commitment to the physical market, which is at the heart of our business," Chamberlain added.
A broker questioned whether the fee hikes were to help offset cost overruns on its new trading system.
A three-year-long flagship project to overhaul the LME's electronic trading system faces up to a year of further delays and mounting costs, sources told Reuters last month.