Britain's financial regulator has blocked plans by the London Metal Exchange to restart trading in Asian nickel futures and raised questions about the exchange's ability to operate reliably, local media reported, citing sources.
In the background, an uncontrolled spike in London nickel futures in March last year, from $30,000 to $100,000 in the space of a week, forced exchanges to declare the trade void and suspend trading in the commodity. The resulting impact continues to this day, due to the reduction of trading volume, London nickel futures often appear 5% of the day up and down, K chart and other metal varieties is not a picture of the style.
The development is also a further blow to the reputation of the London Metal Exchange. The LME said on November 28 that "trading will resume within two weeks". But sources said the Financial Conduct Authority made it clear to exchanges that it did not have sufficient controls at this time. Regulators want the LME to monitor nickel trading and ensure price movements are contained, but whether it can do so in the early hours of London is in doubt.
UK financial regulators want to be sure the LME can monitor the market effectively enough when Asian nickel trading resumes, so it is a matter of confidence, people close to the situation said. They want to be sure that the LME is adequately prepared if similar problems arise again.
Select, the LME's electronic trading system, currently starts trading copper, aluminum, zinc and lead futures at 1 a.m. local time in London, but nickel futures don't open until 8 a.m., which is already 16 p.m. Beijing time. The difficult carry trade also increases the tendency of price volatility in disguise.
The exchange is also considering reducing the daily limit on nickel futures, according to sources, as the LME believes that increasing the arbitrage trade between the last nickel contract and London nickel will help increase market volume. After recovering from the turmoil in March last year, Lun Nickel is now limited to a daily rise or fall of 15 percent.
