London Metal Exchange Mandates Reporting Of Over The Counter Trades To Prevent Price Spikes

London Metal Exchange Mandates Reporting Of Over The Counter Trades To Prevent Price Spikes

In an effort at combating the unexpected spike in nickel prices earlier this year, the London Metal Exchange said yesterday it will require its members to report over the counter (OTC) trades going forward.

In a statement released Friday, the LME said the move will foster more transparency in the process.

“This […] will improve the ability of the LME to oversee activity holistically through increased visibility, ensuring future market stability.”

The new rules will go into effect in one month and will require OTC trades on all physically delivered metals. Although nickel was the only metal affected by the spike, aluminium and copper OTC trades will also need to be reported to the LME.

The LME suspended nickel trading on March 8 after significant OTC trading shorting nickel positions occurred, drastically and suddenly increasing the price. The LME ultimately cancelled all nickel trades made that day.

The trading house has also nixed the current requirement for members to report to the board their OTC positions on nickel on a daily basis. However, it will require members with significant OTC positions to explain to the board the reasoning for those positions.

The LME implemented the rules despite nearly uniform opposition during the two-week commenting period. However, the Exchange is also facing pressure from regulators, as British authorities began a wide-ranging probe in April to review the nickel incident the month prior. The LME says it is also looking into the matter via a third party investigator.

“While any relevant findings from the independent review will also be considered and factored into the LME’s plans in due course, the LME will not delay taking appropriate actions.”

The LME is also facing a US$456 million lawsuit filed by Elliott Associates and a US$15.3 million suit from Jane Street Global Trading over the cancelled nickel positions.