LONDON (Reuters) - The London Metal Exchange (LME) will set limits on positions held on its platform by July next year as part of reforms initiated by the UK financial watchdog, rather than because of large bets by traders, a source with knowledge of the matter said.

Bloomberg News reported on Friday the LME is discussing limits on large positions held by commodity traders, which have in recent months created price volatility on its platform for copper and aluminium contracts. 

Position limits are currently set by Britain's Financial Conduct Authority (FCA), which opened a consultation in December 2023 on proposed reforms to strengthen the resilience of the commodity derivatives market. 

The consultation closed in February last year and a policy document stipulating changes was published in February this year. The new rules transfer responsibility for position limits and exemptions from the FCA to the LME. 

"The LME is working on its implementation plan in response to the FCA's final rules and guidance on reforming the commodity derivatives regulatory framework," the London exchange said in response to a request for comment.

"We will keep the market informed as we work towards the roll-out of the new framework on 6 July 2026."

Industry sources say the LME has been discussing position limits with its members for some time, and that the LME would probably consult on its proposals for these limits.

The FCA's new requirements also focus on over-the-counter (OTC) or bilateral trades between brokers and their clients.

"We proposed new requirements aimed at enhancing the early identification of those risks by trading venues through the reporting of firms’ over-the-counter (OTC) derivatives positions," the FCA said in its policy document.

"Our final rules require trading venues to have the power to collect data on OTC positions, but also set out how that power can be exercised differently, depending on the risks and characteristics of the specific market."     

(Reporting by Pratima Desai and Polina Devitt; Editing by Frances Kerry)