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from Financial Regulatory Forum:

ANALYSIS-Spotlight on Chinese walls in LME warehouses

By Pratima Desai

LONDON, Aug 13 (Reuters) - Fears of sensitive information seeping through Chinese walls has resurfaced after the recent purchase of London Metal Exchange registered warehouses by a major trader, but that concern is not universal.

Motives for buying warehouses include diversifying revenue streams. Lucrative financing deals that tie metal up for long periods and the potential launch of physically-backed exchange traded products (ETPs) also require long-term storage.

The latest deal saw Pacorini's metals warehousing unit fall into the hands of the world's biggest commodity trader Glencore International.

"There is the possibility that when a trading company owns a warehouse the line is crossed," said Edward Meir, analyst at MF Global. "In this case the LME will impose stricter regulations, otherwise people will lose faith in the system."

The pervading unease could lead to existing warehouses without LME registration seeking approval. New entrants to the metals warehousing business is another possibility.

from Financial Regulatory Forum:

LME’s freight derivatives bid set to falter

   By Jonathan Saul and Rebekah Curtis    LONDON, Dec 9 (Reuters) - Opposition from ship brokers and a lack of experience in the seaborne sector is set to scupper any bid by the London Metal Exchange (LME) to move into the freight derivatives market.    Forward freight agreements (FFAs), which allow a buyer to take a position over where freight rates will stand at a point in the future, are not traded on an exchange and the LME said  this year it was interested in expanding into FFAs.    But it has faced a strong outcry from major players in this niche area who partly fear a possible loss of business and argue that the LME has no track record in cash-settled swaps markets.    "The LME's most recent contracts -- plastics and steel billets -- have been abject failures," John Banaszkiewicz, managing director of freight derivatives broker FIS said.    "They are also trying to claw their way back into gold bullion. Can we trust them to make a success of freight with this track record?" [ID:nLU693371]    It is not the first time the LME has faced ire trying to move into new areas. Last month the Minor Metals Association voted against a joint proposal with the LME to set up a weekly price discovery system. [ID:nN22211649]    "They (freight brokers) can't quite see that this, as proposed by the LME, is going to work to their advantage," Baltic Exchange chief executive Jeremy Penn told Reuters.    Brokers have questioned the compatibility given the different type of commodities and products traded on the LME.    "On the dry market, the majority of cargoes reflect trades in the iron ore and coal industries," Nikos Nomikos, reader in shipping risk management at London's Cass Business School, said.    "So there is not what you would classify as a natural match between the business of the LME and the shipping industry."    However, LME commercial director Liz Milan told Reuters it estimated FFA volumes would grow as much as 500 percent through the creation of a central screen.    "If the LME can offer visibility and clarity to an exchange that is looking at freight ... then who is better placed than the LME?" a senior metals industry source said.        PHYSICAL DELIVERY    Freight brokers say the Baltic Exchange should remain the natural home for any changes including a central screen.    "If they (the LME) want to do it on their own, I think they will have massive difficulties because the shipping world stands together in times of peril as we witnessed with the last shipping crisis," Stefan Albertijn, dry bulk chairman of the advisory Freight Market Information Users' Group, whose members include investment banks and trade houses, said.    Most FFA contracts are settled against the Baltic Exchange's physical indices, compiled from independent ship brokers.    Shippers say a further difficulty stems from the nature of LME contracts which are based on physical delivery.    "Freight derivatives are not delivered, they are settled for a cash differential. So it would be a new departure for them (the LME) in terms of trading style," the Baltic Exchange's Penn said.        REBUFFED    The LME in its talks with freight players this year had discussed the idea of setting up a joint venture company with the FFA market which was rejected, two sources familiar with the matter told Reuters.    A shipping source said with an expected upturn in FFA volume next year it was even more unlikely that there could be appetite for LME overtures.    For a graphic on FFA volumes click on: http://graphics.thomsonreuters.com/129/CMD_FFABD1209.gif    The FFA market has grown from its beginnings in 1985 and was estimated to be valued at an all time high of $130 billion to $150 billion in 2008 before the economic downturn.    FIS estimated it could drop to $31.3 billion this year and recover in 2010 to $40 billion to $50 billion.    Some in the metals industry believe it is a matter of when, not if, for FFAs to move onto an exchange.    "It keeps coming up and it certainly has the feeling of something that won't go away," Malcolm Freeman, managing director of LME broker-dealer Ambrian Commodities and Ambrian Metals, said. "Someone somewhere will do it." For a freight derivatives factbox click on: [ID:nLF324137]  ((jonathan.saul@reuters.com; +44 207 542 4357; Reuters Messaging: jonathan.saul.reuters.com@reuters.net))  Keywords: LME FREIGHT/DERIVATIVES     Wednesday, 09 December 2009 10:48:32RTRS [nGEE5B80P2] {C}ENDS

from Commodity Corner:

Live from London Metal Exchange Week 2009

The great and good of the global metals industry gather for London Metal Exchange week -- the flagship event for the industry.

With most base metal prices running way ahead of fundamentals, real and apparent demand unclear and leading economies at different stages of recovery or not, its a key time to take the temperature of banks, producers, consumers and funds involved in metals.

To follow us on Twitter look for hashtag LME.

from Financial Regulatory Forum:

COLUMN-Tin squeeze tests regulator’s mettle in U.K.: John Kemp

-- John Kemp is a Reuters columnist. The views expressed are his own --

By John Kemp LONDON, Oct 5 (Reuters) - The year-long squeeze in the London Metal Exchange's tin contract has renewed intense criticism about the ineffectiveness of commodity regulation in London. It comes at an awkward time, just as the UK authorities try to resist pressure from the United States to introduce stricter market oversight and tougher position limits.

The squeeze has focused attention on contrasting approaches to market regulation. U.S. regulators have long relied on position limits to ensure markets cannot be cornered by a single participant and prices reflect a diversity of views.

Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler cited the need to prevent "excessive concentration" during this summer's hearings on energy market regulation. The Commission is expected to reinforce the existing system, imposing stricter limits with fewer exemptions, when the review's findings are published in the autumn.

In contrast, London regulators have preferred a more "behavioural" approach. Market participants are free to build a dominant position in a futures contract (even hold more than half the open interest in a contract approaching expiry) provided they do not intentionally attempt to manipulate prices, and comply with directions from the exchange and the Financial Services Authority (FSA) to ensure the market remains "orderly".

THE SQUEEZERS' CHARTER Nowhere is London's behavioural approach more developed than on the LME, where participants are free to amass dominant positions and take them all the way to expiry, provided they comply with the exchange's "lending guidance".

The guidelines require the holder of a dominant position amounting to 50 percent or more of the stock in exchange-registered warehouses to offer them for sale, one day at a time, to other market participants with a short position for no more than a specified percentage of the cash price. In effect, the position is loaned to the shorts one day at a time at a (penal) rate capped by the exchange.

from Financial Regulatory Forum:

EU joins U.S. call for more oil market transparency

By Jan Strupczewski and Pete Harrison BRUSSELS, Sept 16 (Reuters) - The European Union has joined the United States in calling for action to improve transparency in oil markets, a draft EU document shows.

The United States is expected to call on the Group of 20 nations to increase oil market transparency when the group meets on Sept. 24-25 for a summit in Pittsburgh, Pennsylvania.

"The G20 should commit to improving energy security by increasing oil market transparency and contain speculation," said a draft document for EU leaders who will meet on Thursday to prepare for the Pittsburgh meeting.

Such action would include "reporting comprehensive data on domestic oil markets and taking steps to oversee the over-the--counter markets so that regulators have a more complete view into the actions of market participants," said the draft obtained by Reuters.

Transparency and speculative activity have become an issue in commodity markets following the six-year record run that sent oil to all-time highs near $150 a barrel last year, battering the economies of import-reliant nations.

In addition, food prices rose sharply last year as investors bought contracts in wheat, corn and soybean futures.

The United States has already taken steps to improve its domestic data collection quality and increase the information provided by speculators in weekly trader commitment reports released by the Commodity Futures Trading Commission (CFTC).

from Financial Regulatory Forum:

UK, oil groups to meet on U.S. regulation pressure

By Christopher Johnson LONDON, Aug 4 (Reuters) - Britain's financial watchdog and the UK Treasury will meet oil industry representatives on Wednesday in response to U.S. pressure for more regulation of commodities markets.

The UK Financial Services Authority (FSA) has said the meeting will involve oil producers, traders, banks and funds.

It will discuss market transparency and efficiency, according to the FSA invitation to oil market participants, a copy of which has been seen by Reuters.

Industry sources say they expect 20-30 organisations or companies to be represented at the meeting in the FSA building in Canary Wharf, London's new financial services zone.

The meeting comes as the U.S. regulator, the Commodity Futures Trading Commission (CFTC), holds hearings in Washington which are likely to result in tighter rules on derivatives trading and possibly new limits on positions held by investors.

Industry sources say the FSA and most UK market participants oppose tighter rules for markets, preferring instead to keep a lighter regulatory regime to encourage liquidity.

Both the Intercontinental Exchange (ICE) and the London Metal Exchange (LME), two of the world's largest commodity exchanges, have said they have no plans to change the way they regulate large positions on their UK-based markets.

from Financial Regulatory Forum:

LME, ICE say no plans to detail non-commercial positions

By Pratima Desai LONDON, July 29 (Reuters) - The London Metal Exchange and Intercontinental Exchange said on Wednesday they had no plans to publish details on speculative positions on their contracts, despite controversy about some recent holdings at LME.

The topic of large positions on the LME has also been raised by traders and analysts who think the exchange -- in the interests of transparency -- could or should publish more detail about large, possibly, speculative positions.

The LME also said it has no plans to publish names of dominant holders of stock warrants, cash and futures contracts and that it does publish data on large positions.

"Breaking that information down into categories like hedging and speculative is something that we have looked into, but do not think would provide any benefit," the exchange told Reuters.

"Publishing names would be equivalent to publishing commercially sensitive information and could distort the market. There are no plans to do this."

Analysts argue that the LME should be able to break down positions into commercial and non-commercial in the way the U.S. Commodity Futures Trading Commission does.