(Bloomberg) — The embattled boss of the London Metal Exchange says the banking sector bears some responsibility for the conditions that led to a massive short squeeze that broke the nickel market.

Banks lobbied against efforts to increase transparency in metal markets last year, LME Chief Executive Officer Matthew Chamberlain said in an interview. The proposed changes would have enabled the LME to crack down on Tsingshan Holding Group Co’s large short position. before triggering an unprecedented 250% price hike last week, he said.

Xiang Guangda, the Chinese nickel magnate behind Tsingshan, has a short position of more than 150,000 tons, Bloomberg reports, but only 30,000 tons of it are held directly on the exchange. The remainder is held through bilateral, over-the-counter transactions with banks led by JPMorgan Chase & Co., including BNP Paribas SA, Standard Chartered Plc and United Overseas Bank Ltd.

“The OTC position has caused significant problems for the exchange,” Chamberlain said Friday. After the LME made a proposal last year to give the exchange more visibility of positions in the OTC market, “it was rejected by a number of banks,” he said. “I don’t think we will allow it to be rejected again.”

Chamberlain announced in January that he would be leaving the LME to take on a new role at a blockchain startup. In the interview, he declined to say whether he would leave the LME at the end of April as planned.

He called for greater regulation of over-the-counter commodities markets, similar to measures taken elsewhere in the wake of the 2008 global financial crisis.

“There will now have to be a mature discussion about how to better control the impact of the OTC market on the exchange,” he said. “It’s probably a similar discussion to what we’ve seen in other asset classes after the financial crisis. That’s really not applied to raw materials. Maybe that should happen.”

Owned by Hong Kong Exchange & Clearing Ltd. since 2012, the LME is the ultimate decision maker on rule changes. But it needs to consult with market participants and generally strives to keep its core members, including many major banks, happy. The proposal for greater transparency for over-the-counter positions came last year at the same time that the LME faced outcry from users over a proposal to shut down the open-outcry trading floor, “the Ring”, whose later aided down.

Chamberlain itself has faced strong criticism from users over the exchange’s decisions in the past two weeks after it allowed nickel prices to soar to over $100,000 a ton, then suspended trading and retroactively $3.9 billion in transactions. The relaunch of nickel trading since Wednesday has also been hit by a series of glitches in the electronic market.

‘Understandable anger’

But the CEO said he was “proud” of the way LME’s management and staff had handled the situation: “They are not the cause of this position, they did not open this position.”

He blamed the errant electronic market on “a bug in the underlying third-party software”, saying that if the LME had waited for all of these issues to be fixed, it would have further delayed the market’s reopening.

Still, he acknowledged that the stock market would have “a tremendous amount of work” to regain investor confidence. “I don’t want to underestimate the understandable anger in any way. I understand very well why people feel this way.”

Responding to a debate in the copper industry over whether Russian metal should continue to be supplied to LME warehouses, Chamberlain said the exchange was guided by government policy.

“Russian metal is not currently sanctioned,” he said. “We understand that this is a conscious decision by governments, that they do not consider it appropriate at this time.”

He added that a vote in the LME’s copper committee on Friday to recommend banning new Russian copper from the exchange was not unanimous.

“That shows that there is still a variety of views in the industry,” he said. “It’s important to note that we have to adopt all of those views.”


This post LME Boss Says Banks Are Partly Responsible For Nickel Short Squeeze was original published at “https://www.bloombergquint.com/markets/lme-boss-says-banks-are-partly-to-blame-for-nickel-short-squeeze”

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