Nickel chaos prompts LME to force disclosure of off-exchange trades

Credit: LME

The London Metal Exchange is pressing ahead with a plan to drastically expand its powers to trades done outside its marketplace, as it overhauls rules in the wake of a nickel crisis earlier this year.

The world’s biggest base-metals bourse will require members to disclose all over-the-counter positions of their clients on a weekly basis starting on July 18, it said Friday. The decisions confirms a plan set out a month ago, and largely overruled objections from LME members.

The exchange has come under harsh criticism for its role in March’s nickel squeeze, which saw prices spike 250% before the LME suspended trading. It’s being investigated by UK regulators and also being sued by Paul Singer’s Elliott Investment Management and trading firm Jane Street over damages resulting from the canceled trades.

Related: IMF says LME governance needs strengthening after nickel fiasco

The nickel squeeze in March was centered around a large short position amassed by entrepreneur Xiang Guangda, whose Tsingshan Holding Group Co. is the world’s biggest nickel and stainless steel company. The vast majority of his position was held via OTC positions with banks rather than in contracts directly on the LME, meaning that the exchange had limited knowledge of it.

Several concerns about the LME’s proposal were raised by more than half of the 27 respondents to its consultation. They included worries that the new reporting obligations would be operationally challenging for the banks and brokers that are members, and that the disclosure of positions between members and their clients might breach confidentiality requirements.

Still, the bourse said that the move was “in the interests of the market as a whole and will improve our ability to oversee activity holistically, ensuring future market stability and continued compliance with our regulatory obligations.”

The LME said that it expected members to disclose details on OTC positions notwithstanding contractual confidentiality clauses, but that in countries where by law they were prevented from revealing identifying information about their clients, they could report client positions in anonymized form.

LME members — the largest of which are Wall Street giants like JPMorgan Chase & Co. and Goldman Sachs Group Inc. — have in the past resisted the exchange’s attempts to extend its reach to the lucrative OTC market.

LME Chief Executive Officer Matthew Chamberlain said in March that banks bore some responsibility for the conditions that led to the massive short squeeze because they lobbied against efforts to increase transparency.

(By Jack Farchy)

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