LME Says Dealers Would Have Struggled If Nickel Trades Had Stood

LME Says Dealers Would Have Struggled If Nickel Trades Had Stood

Some traders on the London Metal Exchange would have struggled to continue their activities if the bourse hadn’t suspended the nickel market and canceled trades that drove prices sharply higher on Tuesday morning, according to Chief Executive Officer Matthew Chamberlain.

The comments from the LME CEO hint at the magnitude of the potential losses that brokers and traders faced as prices more than doubled on Tuesday. Bloomberg has reported that some brokers and users were already reeling from a similarly unprecedented spike on Monday, with a unit of China Construction Bank being given more time to post collateral with the exchange to cover losses by leading nickel producer Tsingshan Holding Group Co.

“It would have been extremely difficult for some of our market participants to continue their activities,” Chamberlain said in an interview with Bloomberg TV. “The ability of the financial system to get that money to the members in London and then into the exchange I think would have been significantly stressed.”

Trading remains halted in the nickel market, and the bourse doesn’t expect activity until at least Friday. And even after restarting it will keep the training wheels on -- trading will only happen in European hours to begin with and with a 10% daily limit on price moves. 

The exchange said it’s also looking at a mechanism to reduce the short positions in the market before the restart, by “netting off” large long and short position holders on a voluntary basis. 

Chamberlain said he recognizes the “frustration” among some market participants after the suspension, but said the exchange will get more credit in long run for having stepped in to ensure financial stability.

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