LME boss says banks are partly to blame for nickel short squeeze

The embattled boss of the London Metal Exchange says the banking industry bears some responsibility for the conditions that led to a massive short squeeze that broke the nickel market.

The embattled boss of the London Metal Exchange says the banking industry bears some responsibility for the conditions that led to a massive short squeeze that broke the nickel market. 

Banks last year lobbied against efforts to increase transparency in metals markets, LME Chief Executive Officer Matthew Chamberlain said in an interview. The proposed changes would have allowed the LME to crack down on the large short position held by Tsingshan Holding Group Co. before it caused an unprecedented 250 per cent price spike last week, he said.

Xiang Guangda, the Chinese nickel tycoon behind Tsingshan, has a short position of over 150,000 tons, Bloomberg has reported, but only 30,000 tons of it is held directly on the exchange. The remainder is held via bilateral, “over-the-counter” deals with banks led by JPMorgan Chase & Co., and including BNP Paribas SA, Standard Chartered Plc and United Overseas Bank Ltd. 

“The OTC position has caused significant problems for the exchange,” Chamberlain said on Friday. After the LME made a proposal last year to allow the exchange greater visibility of positions held on the OTC market, “it was rebuffed by a number of banks,” he said. “I don’t think we will allow it to be rebuffed again.”

Chamberlain announced in January he would leave the LME to take on a new role at a blockchain startup. In the interview, he refused to say if he would still leave the LME at the end of April as planned.

He called for greater regulation of the over-the-counter commodity markets, comparable to measures taken elsewhere in the wake of the global financial crisis in 2008.