LME to require weekly OTC position reporting as it seeks to address nickel chaos

LME CEO Matthew Chamberlain has said the lack of transparency in OTC positions made it difficult to manage the nickel situation
New reporting requirement is part of expected reforms to address conditions that led to a week-long suspension of nickel trading in March

Banking & finance

Chad Brayin London

Published: 7:00am, 18 Jun 2022

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The London Metal Exchange (LME) said it would require members to report off-exchange positions in some metals weekly as it seeks to address issues that helped fuel a chaotic period in the nickel market earlier this year.

The Hong Kong Exchanges and Clearing (HKEX)-owned bourse halted trading in nickel and cancelled thousands of trades in the early hours of March as soaring prices threatened to destabilise the market amid a short squeeze that triggered billions of dollars in margin calls.

Last month, the LME first proposed that its members report their over-the-counter (OTC) positions on a weekly basis for metals contracts that require the metal to be physically delivered when a futures contract expires, including contracts for aluminium, copper, nickel, tin and zinc.

Following a consultation, the LME said on Friday it would introduce a weekly OTC position reporting framework beginning on July 18.

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“This enhancement of the LME’s visibility of OTC markets is, we believe, 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 bourse said.

LME CEO Matthew Chamberlain has pointed to the lack of transparency in OTC positions as one reason the bourse struggled to identify and manage the situation.

However, the industry has not necessarily embraced the proposed changes, with several respondents indicating they would prefer the LME wait until regulatory reviews of the situation have concluded before adopting new reporting requirements.

The Managed Funds Association (MFA), a trade body representing some of the world’s biggest hedge funds, said in a June 1 letter that it supported the LME’s efforts to address issues surrounding disorder in the nickel market, but had “significant reservations” about the OTC reporting proposal. The MFA has separately filed a formal complaint with the LME over its handling of the nickel situation.

Nickel prices, alongside other commodities, rose dramatically in early March following Russia’s invasion of Ukraine and amid concerns about supply shortages.

Prices at one point surged 250 per cent in just over 24 hours, threatening dozens of short sellers, including the world’s largest stainless steel producer Tsingshan Holding Group.

The bourse has said the nickel market had become “disorderly” in the early hours of March 8 and the decision was made to cancel trades in order “to take the market back to the last point in time at which the LME could be confident that the market was operating in an orderly way”.

It was only the second time in the 145-year-old bourse’s history that it had cancelled trading in one of its metals.

Traders at the LME’s open outcry pit in London in February. Photo: Bloomberg

Traders have claimed the cancellation of trades unfairly favoured some market participants over others, with affiliates of American hedge fund Elliott Management and quantitative investing firm Jane Street Global trading filing lawsuits in Britain.

Britain’s financial regulators said in April that they plan to conduct a review of the LME’s handling of the unprecedented suspension in nickel trading, while the bourse has announced it will conduct its own independent review.

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