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LME clearing house cuts minimum size of default fund

(Updates Sept. 28 story with detail throughout)

Sept 29 (Reuters) - The London Metal Exchange's clearing house will cut the minimum size of its default fund, which exists to cover outstanding debts of members who default on payments, to $1.012 billion from $1.031 from Oct. 2.

The reduction in the fund's minimum size announced on Thursday, the second within 31 days, suggests less volatile trading of industrial metals such as copper, aluminium, zinc, lead and nickel.

In August LME Clear announced changes to the way it sets the minimum level of the default fund.

«The new methodology links the minimum Default Fund size to the recent level of risk, being set as a percentage of the average initial margin over the previous six months,» LME Clear said in a notice.

Initial margin is a percentage of the purchase price that members must deposit with LME Clear for their trades. It typically changes when price of the metals traded on the LME are more or less volatile.

In the event of a member default, LME Clear takes over the member's portfolio and sells it. Any losses are initially offset against margins paid by the defaulter, and then by LME Clear's default fund. (Reporting by Harshit Verma in Bengaluru and Pratima Desai in London; Editing by Jan Harvey)

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