PILOT SPIN
Spin Zone => Spin Zone => Topic started by: Jim Logajan on March 10, 2022, 10:29:27 PM
-
https://www.wsj.com/articles/the-moral-hazard-lessons-from-nickel-market-disaster-11646923194?st=0jd47xwn5eewsdu&reflink=desktopwebshare_permalink (https://www.wsj.com/articles/the-moral-hazard-lessons-from-nickel-market-disaster-11646923194?st=0jd47xwn5eewsdu&reflink=desktopwebshare_permalink)
The Moral Hazard Lessons From Nickel Market Disaster
The problems started on Tuesday morning, when traders on the London Metal Exchange smelled blood and nickel prices almost doubled. China’s Tsingshan Holding faced a $1 billion-or-so margin call that exchange officials feared it couldn’t meet. Rather than let it fail, which would probably have taken down several of the smaller LME brokers that had serviced Tsingshan, LME decided to cancel all that day’s trading, more than 9,000 trades worth about $4 billion.
It. Canceled. The. Trades. Not because of a fat-finger error, which exchanges often cancel. Not even because of a rogue algorithm (as regulators claimed in the 2010 flash crash in U.S. stocks). But because someone with too much leverage was going to blow up, with knock-on effects on some members of the exchange.
Hopefully the trader's who would have made money had their trades not been cancelled will have grounds to sue and win against the Exchange. An exchange acting so nakedly on behalf of one client deserves to lose its traders to other exchanges.
-
And most people will completely ignore this article and the implications.
Complacency and apathy are destroying everything around us.
-
Total B.S. and the traders who lost money should sue for damages.
-
Should anyone want to read the LME’s rules, they are easily available on line. https://www.lme.com/-/media/Files/Company/Market-regulation/Rulebook/Previous-releases/Rulebook-as-of-August-2021.pdf
I am on my phone and cannot read them until late today. I suspect they say language like “the exchange has the sole and full discretion to cancel any trade for any reason”.
That still does not restore faith in their exchange.
-
Should anyone want to read the LME’s rules, they are easily available on line. https://www.lme.com/-/media/Files/Company/Market-regulation/Rulebook/Previous-releases/Rulebook-as-of-August-2021.pdf
I am on my phone and cannot read them until late today. I suspect they say language like “the exchange has the sole and full discretion to cancel any trade for any reason”.
That still does not restore faith in their exchange.
"13. TRADE INVALIDATION AND CANCELLATION
13.1 The Exchange may, in certain circumstances, invalidate transactions in accordance with the
relevant procedures established by Notice.
13.2 Where an LME Select Participant has made an error in the execution of a transaction undertaken on LME Select, such LME Select Participant may request that the Exchange contact the counterparty(ies) to determine whether such counterparty(ies)would agree to the transaction being cancelled. In the event that the counterparty(ies) do not agree to the request, then the transaction will not be cancelled.
13.3 Notwithstanding Trading Regulation 13.2, the Exchange may in its absolute discretion review any transaction undertaken on LME Select and invalidate or adjust the price of any trade in accordance with any policy that the Exchange issues from time to time on erroneous trades.
[...]
22. ORDER CANCELLATION AND CONTROLS
22.1 Notwithstanding, and without prejudice to, the general power set out at Trading Regulation 1.3, the Exchange may temporarily halt or constrain trading in accordance with the relevant procedures established by Notice if there is a significant price movement during a short period in a financial instrument on the Exchange or a related trading venue (as such term is defined in Article 4(1)(24) of the MiFID II Directive). Where the Exchange considers it appropriate, the Exchange may cancel, vary or correct any Agreed Trade or Contract."
The very last sentence of 22.1 kind of makes section 13 moot. An exchange that exercises such an "out" to protect its brokers is likely to regret it long term.
-
“Where the Exchange considers it appropriate, the Exchange may cancel, vary or correct any Agreed Trade or Contract.”
In other words, we do what we want when we want for whatever reason we want. What else could “we consider it appropriate” mean?
-
Thanks to commenters to the WSJ article I learned that LME is a wholly owned subsidiary of Hong Kong Exchanges and Clearing(HKEX):
https://en.wikipedia.org/wiki/Hong_Kong_Exchanges_and_Clearing (https://en.wikipedia.org/wiki/Hong_Kong_Exchanges_and_Clearing)
The Hong Kong Government is the largest owner with the right to appoint 6 of the 13 board members.
The HKEX Wikipedia page includes a couple dubious past practices, such as "hiring the children and associates of Chinese officials, clients and potential future clients."