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London Metal Exchange plans to introduce position limits

LONDON, Sept 15 (Reuters) - The London Metal Exchange (LME) plans to introduce limits on large positions for the first time to avoid market squeezes, initially on its new aluminium premium contract, it said on Tuesday.

The use of position limits may be expanded to other contracts if upcoming legislation requires them, the exchange added in a statement.

The LME, the world's oldest and largest market for industrial metals, has its own system of controlling the impact of large positions, but that would not be viable for its new aluminium premium contract due to be launched on Nov. 23, it said.

Under the LME's existing "Lending Guidance", the holder of a dominant position must sell some short-term contracts at fixed prices to other participants if the latter need them.

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But since the new aluminium premium contract will have monthly prompt dates instead of daily or weekly ones, the Lending Guidance would not be practical, the LME said.

"It (Other OTC: ITGL - news) is anticipated that the position limit regime will only apply in respect of trading premium contracts," it said.

"However, the power to introduce position limits is drafted as a general power ... given that further position management regimes may be required by MiFID II."

Commodity traders are currently exempt from the EU's Markets in Financial Instruments Directive (MiFID). That is set to change under MiFID II, which takes effect from January 2017.

The LME said it was launching a consultation, requesting responses until Oct (HKSE: 3366-OL.HK - news) . 15, on the proposals for position limits as well as other changes to its rule book.

The LME is owned by Hong Kong Exchanges and Clearing Ltd . (Reporting by Eric Onstad; Editing by Susan Fenton)