The London Metal Exchange (LME) will come under scrutiny over the short squeeze in LME nickel futures.
On April 4th, local time, the UK Financial Conduct Authority (FCA) and the Bank of England Prudential Regulation Authority (PRA) issued a joint statement, planning to impose a The LME) and the London Clearing House (LCH) have launched a review to explore what lessons the two institutions can draw on governance, market surveillance and risk management. The
statement shows that the FCA plans to review the LME; the PRA plans to review the LCH as a central counterparty clearing institution. In addition, the PRA and FCA will further engage with key players in the market through their respective regulatory processes to assess the effectiveness of their risk management and governance during this period.
Under section 166 of the UK’s Financial Services and Markets Act 2000, both the FCA and the Bank of England will appoint “technical staff” to assist in the investigation. The FCA and the Bank of England said they will refer to the investigation report after it is submitted to determine whether to take further action and announce the next action in due course.
At the conclusion of the technical staff review, the FCA can order the LME to change the way it conducts business. But since this is not an enforcement action, it will not involve matters such as fines. The
statement said the events surrounding the suspension and resumption of trading highlighted issues raised in the recent LME discussion paper on market structure, in particular the role of transparency in the LME and related markets. effect. The FCA has been in discussions with the LME over its proposal for some time and expects the LME to carefully consider how recent events will affect its future approach to market structure.
According to the regulator’s statement, the LME has also agreed to “strengthen its governance” by appointing additional independent directors, and will assess the achievement based on the function and composition of its board The best way to do this.
Subsequently, the LME responded by saying that it welcomed the FCA and the Bank of England to review the response to nickel market events; an independent nickel market transaction will be established Review and commission an independent agency to investigate nickel market events.
” The events leading to the suspension and resumption of nickel trading are unprecedented. The LME fully recognises the impact of these events on a broad range of market participants and understands that not all participants agree Action taken. LME seeks to act in the overall market interest and acknowledges the concerns expressed by some market participants. The LME is committed to ensuring that the actions of all participants, including the LME itself, are fully reviewed and appropriate action is taken to restore confidence and support the long-term health and efficiency of the market. “The LME said in the statement.
According to the LME statement, the full and detailed scope of the independent review has yet to be determined, but will broadly include transactions in the nickel market and Conduct a full forensic review of position activity (including over-the-counter transactions during the relevant period); assess market reform proposals already made by market participants; assess which volatility control mechanisms should be implemented over time; consider stricter job management regimes; consider markets Other market reform proposals from stakeholders.
LME nickel futures staged an epic short squeeze from March 7th to March 8th , the price of nickel rose to a historical high of US$100,000 / ton. Subsequently, LME announced the suspension of nickel trading on March 8 and cancelled all transactions after 0:00 on the 8th. After about a week of suspension, LME nickel trading Restart and historically set the price limit system. This series of operations triggered a crisis of market confidence in the LME.
LME pointed out that the previously announced series of actions, And the FCA and Bank of England scrutiny will support the long-term health, efficiency and resilience of the market and all its components.