Lme Users Want More Market Information

But they differ on whether additional data should be in the public domain or just available to regulators, initial replies to a major market review show.

The review by Britains senior financial regulator, the Securities and Investments Board (SIB), is expected to lead to changes at the 120-year-old market, the leading international centre for metal trading. It was set up in June after Sumitomo admitted that its former star trader Yasuo Hamanaka had made huge losses, now put at $2.6 billion, in unathorised copper trading.

David Pritchard, the head of SIBs markets and exchanges division who is heading the review, told Reuters the clear early message from a 33-question document sent around the world is for reform and greater price transparency. Despite sending the form with an October 15 deadline to an LME-checked list of 3,500 names, SIB has only had a small return of 50, although some are from major trade bodies with many individual members. It is still accepting replies but is committed to publishing a report on the results by the years end.

 

At the LMEs annual dinner this month, chairman Raj Bagri said greater transparency might include details of forward, option and stock positions.

SIB is keeping an open mind on what conclusions it will reach and wants to make sure it obtains the views of all sectors of the metals industry. It appears that nearly everybody has similar areas of concern but the remedies suggested vary. All sectors of the global industry agree there should be more information, or market transparency, especially on trades done outside the LME rings when traders gather on the exchange floor for open-outcry trading. But this has to be balanced against the high liquidity available in ring trading.

There seems to be general agreement there should be more position reporting but opinions vary on whether this should all be in the public domain or restricted to regulators, who would be able to take action when orderly markets are threatened, Pritchard said.

Stocks of metal held in LME-approved warehouse around the world have aroused strong comment, especially from producers and consumers of physical metal.

The LME has been criticised for taking too little interest in these warehouses and insufficient data about what at times are vital marginal supplies.

A key worry is that some metal is effectively locked away under long-term contracts and only available at a premium price needed to break special financing or warehousing deals.

Consumers are also worried that some warehouses have cut the cost of putting metal into storage but made it expensive to take out. And it is easy to speed delivery to warehouses but shipments out can be slow, effectively reducing metal available to the market.

Some respondents said scope existed for the LME to define good practice for warehousing without stopping competition.

Ideas to lessen distortions to price transparency include having ownership of stocks on a register rather than warrants, which are effectively anonymous bearer bonds, daily rather than twice-weekly stock announcements and reporting the percentage of stocks locked up under long-term deals and for how long.

Most of the responses wanted fewer LME traders on the governing body, to avoid potential conflicts of interest on supervision and surveillance, but disagreed on new structures.

Likewise, most want more transparency in the over-the-counter (OTC) market but realise the difficulty of achieving this.

There has been strong support, especially from firms with an interest in physical metal, for the LME to continue its system of non-cash clearing, by which brokers give clients credit.

Producers slightly dominated replies, which mainly focused on copper but also covered trading on and off the LME in its other metals