The London Metal Exchange (LME) has been told to increase regulations on market distortions and price manipulation by a new independent review led by Sir Brian Hammond, former chairman of the UK Financial Services Authority. The review, which was commissioned in December 2020, found that the LME’s existing legal framework had not kept up with the rapid development of financial markets and technology. It also highlighted how certain players had misused loopholes in the system to their advantage. In this blog post, we will explore what this new independent review means for the LME as well as some potential changes that could be implemented to better regulate the metals market.
LME to be Reviewed by an Independent Panel
An independent review of the London Metals Exchange (LME) has been commissioned in order to increase regulations on market distortions, according to a letter sent by the UK Financial Conduct Authority (FCA) to the LME.
The FCA believes that there are “significant” market distortions taking place on the LME, and has therefore asked for an independent review in order to assess what changes need to be made in order to address these issues.
The review will be conducted by an external panel of experts, and is expected to be completed by the end of 2018. It is not yet clear what specific changes the FCA is seeking from the LME as a result of this review.
The panel will assess if the LME is effectively regulating the market
The panel, which is made up of independent experts, will assess whether the LME is effectively regulating the market and if there are any areas where it could improve. It will also consider whether the exchange is doing enough to tackle market distortions, such as those caused by speculators.
The review comes at a time when the LME is facing increased scrutiny from lawmakers and regulators over its role in the metals market. In particular, there have been concerns that the exchange has not done enough to prevent manipulation and price manipulation.
The panel’s report is expected to be published later this year and will make recommendations on how the LME can improve its regulation of the market.
The panel will make recommendations to the LME on how to improve regulation
The world’s largest metals exchange, the London Metal Exchange (LME), has been told by an independent review panel to increase regulation around market distortions. The review was commissioned in the wake of criticism that the LME had failed to prevent widespread manipulation of aluminum prices by Glencore, one of the world’s largest commodity traders.
The review panel, which was set up by the British government and includes former Bank of England Governor Mervyn King, said the LME should do more to limit the ability of single players to distort prices. It also called on the exchange to improve its governance and communication with stakeholders.
The recommendations come as the LME prepares to launch a new aluminum contract next month that will include measures to address some of the concerns raised by critics. The panel said the LME should continue with its plans for the new contract, but added that more needs to be done to address price manipulation and other distortions in the market.
In its report, the panel said: “There is a risk that without further action by the LME, distorted pricing could re-emerge… The Review therefore recommends that the LME strengthens its rules and practices in relation to distortionary behavior, including through enhanced monitoring and surveillance.”
The panel also called on the LME to improve communication with stakeholders about its plans and progress in addressing market distortions. It said: “The LME needs to do more to engage with a wider
The LME will take action to increase regulation based on the panel’s recommendations
The panel found that the LME’s current system for monitoring and regulating market distortions was insufficient. The panel recommended that the LME take action to increase regulation based on the panel’s recommendations. Specifically, the panel recommended that the LME:
-Increase its surveillance of market participants
-Implement a more formal process for investigating and sanctioning market participants who engage in practices that distort the market
-Increase transparency around its regulatory decisions
The LME has said that it will take the panel’s recommendations into consideration and will take action to increase regulation based on the panel’s recommendations.
Conclusion
In conclusion, the independent review of London Metal Exchange trading practices has made it clear that more effective regulation is needed to combat market distortions. This is a welcome move for those who have been concerned about the lack of protection in the metals markets and should provide greater assurance that deals are fair and transparent. The LME now needs to take steps to ensure these new regulations are implemented properly so that confidence can be restored in this sector.
