LME Clear, the clearing house for the London Metal Exchange market, has received approval from the Bank of England (BoE) to launch a trade-compression service, giving members the opportunity to reduce the notional value of their positions and simplify their portfolio management.

“In some cases, LME Clear’s new compression service could reduce the notional value of a member’s positions by as much as 90 per cent. At the same time, it will reduce the number of positions members manage, which increases operational efficiency and minimises risk,” says Trevor Spanner (pictured), CEO at LME Clear.

The new post-trade, risk-neutral system will allow members to offset multiple trades that have compatible characteristics into a single trade, or reduce the trades to a net zero position, without altering the risk profile of their portfolio. This may help to lessen the capital requirements placed on members by European regulators.

LME Clear has seen interest from a significant majority of members in using trade compression, which will be offered as an optional service. LME Clear plans to launch the initiative later this year.