LME Averaging

LME

On Exchange

Averaging Solutions Swaps

• MAF
  • Monthly Average Future
  • Cash settles at MASP
    • Monthly Average Settlement Price
• TAPO
  • Average Asian-style options

Strategies

Fixed for floating

• Physical participants pricing real-world contracts using MASP
• Protect against adverse movement in floating average price
• Buys fixed leg of MAF
  • Hedging a physical buy order of metal basis the currently unknown MASP

Float trade

• MAF + Future
  • Do futures at average prices
• Float
  • Sell MAFs
    • e.g bid 5800/offer 5810
  • Buy futures prompt settlement date of MAFs
    • e.g bid 5812/offer 5815
  • Premium of 5815 - 5800 = 15
  • MASP settles at e.g 6000
    • MAFs payoff to -200
    • Futures payoff at previously agreed 5815
    • 5815 + 200 = 6015 = MASP +. Premium
  • Fixed leg of MAFs and fixed price of futures offset
    • Leaves long future positions at MASP