London Stock Exchange decides on formation of nickel prices
2023.01.10 08:53
London Stock Exchange decides on formation of nickel prices
By Kristina Sobol
Budrigannews.com – On Tuesday, the London Metal Exchange (LME) said that by the end of the first quarter, it will outline how it will implement the recommendations of an independent report that looked into the nickel crisis that occurred last year.
The nickel contract is still in violation, months after turbulence brought attention to oversight deficiencies at the LME. As a result of falling volumes and liquidity, there is no global reference price for the nickel industry.
On March 8, disorderly trade culminated in worries about supplies from major producer Russia following its invasion of Ukraine and the cutting of large short positions, or bets on lower nickel prices. Prices quickly doubled to more than $100,000 per tonne.
On that day, the world’s largest and oldest metals forum canceled all nickel trades, for which it is being sued, and the market was shut down for the first time since 1988.
It hired Oliver Wyman, a management consulting firm, to look into the nickel trading mess in June.
According to a statement released by the exchange, “The LME has already taken measures to build market resilience since March 2022, such as implementing daily price limits and (over-the-counter) position reporting for all physically delivered metal.”
The LME’s risk and control functions should be expanded to find and avoid market distortions, significant risks in the over-the-counter (OTC) market should be monitored, and rules and enforcement procedures should be tightened.
In addition, the report recommends tighter controls on price volatility and enhancements to operational readiness for extreme event management.
Jennifer Han, Head of Global Regulatory Affairs at the Managed Funds Association, stated, “Our concerns that the LME lacked the systems and controls to manage through the March 2020 nickel crisis have been confirmed by the independent review.”
“It is absolutely necessary for a thorough regulatory review to address the reasons why LME failed in its regulatory function.”
In April, the nickel trading halt was the subject of a comprehensive investigation by the Bank of England and the Financial Conduct Authority.
Regulators stated that the incident highlighted concerns regarding the 145-year-old LME’s transparency and that they would determine whether further action should be taken.
The BoE is looking into the LME’s clearing house, while the FCA is looking into how the exchange handled the situation.
For all physically delivered metals, the LME has already imposed daily price limits and OTC position reporting.
The fact that only about 21% of global production—or 650,000 tonnes—can be delivered in response to the LME nickel contract is one part of the issue.
The LME stated, “The LME Nickel Committee will continue to investigate whether any changes to the LME Nickel contract… may be beneficial to the market.”
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The exchange stated that it anticipates announcing the return of Asian nickel trading, which was suspended in March of last year. It anticipates that this will help increase market liquidity.
