The London Metal Exchange should tighten its rules and enforcement processes to prevent risks of market distortions, according to an independent review of the events surrounding March’s nickel crisis.
(Bloomberg) — The London Metal Exchange should tighten its rules and enforcement processes to prevent risks of market distortions, according to an independent review of the events surrounding March’s nickel crisis.
The LME, which is also facing regulatory investigations from the UK’s Bank of England and Financial Conduct Authority, appointed Oliver Wyman to conduct the review last year.
It offers the first in-depth independent assessment of the crisis, which shook the global metals world and brought several of the LME’s members to the brink of collapse. Nickel prices spiked by an unprecedented 250% in a little over 24 hours in a massive short squeeze centered on metals giant Tsingshan Holding Group Co., prompting the exchange to close the nickel market for a week and — most controversially — cancel billions of dollars of trades that took place at the highest prices.
The LME said Tuesday it will announce an implementation plan by the end of March in response to the recommendations, which include:
- Extend the mandate of LME’s risk and control functions to explicitly cover identification and prevention of market distortions, and upgrade capabilities accordingly, tighten LME rules and enforcement processes to prevent risks of market distortions, and monitor significant risks in the over-the-counter market to manage risks of LME market distortions.
- Upgrade volatility controls to slow down extreme price moves, and build operational readiness across the market for managing extreme events.
- Consider tightening rules to improve perceptions of member and LME Clear resilience, and provide a clear vision for how the LME Group will respond to events and rebuild liquidity.
The LME also expects to “shortly” announce the resumption of nickel trading in Asian hours — which has been on hold since the March crisis.
The review did not consider the actions of the LME during the crisis, and it did not draw any conclusions on the possibility of abusive behavior having contributed to the events.
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