Top LME Broker Marex Urges Exchange to Keep Focus on Metals Users

(Bloomberg) -- As the London Metal Exchange and regulators start reviewing last month’s nickel-market chaos, one of its top brokers said any potential reforms shouldn’t come at the expense of the producers and consumers that rely on the exchange to set prices for the world’s key industrial metals.

The unprecedented short squeeze in nickel -- when prices spiked 250% in less than two days -- has renewed a longstanding tension between the interests of the exchange’s physical-industry users and their brokers on one hand, and financial participants like hedge funds and algorithmic traders on the other.

The LME should focus on maintaining a market that works for producers and buyers of metals, Marex Group Chief Executive Officer Ian Lowitt said in an interview. Marex, which on Wednesday announced it had made record profits in 2021, is a “category one” member of the LME, with a team of dealers to run client orders through the exchange’s famous open-outcry trading Ring.

“The LME has evolved to be an exchange that established the reference price for base metals in a way that sort of suited the requirements of producers and consumers of those metals,” Lowitt said. “That’s a real, valuable thing in the world.” 

While LME Chief Executive Officer Matt Chamberlain has spent years trying to woo new entrants to help boost volumes, the exchange has long pledged to put the interests of its core users first in its strategy. The controversial move to close the nickel market on March 8 and cancel billions of dollars of trades at the highest prices was effectively a decision in favor of the physical industry -- bailing out nickel tycoon Xiang Guangda, who held a large short position, and his banks, as well as other traders and brokers who were put under pressure by spiking prices.

The U.K.’s Financial Conduct Authority and the Bank of England have announced separate reviews into the LME’s decision making, governance and risk management, while the exchange itself is also conducting an independent investigation.

Turmoil in the nickel market has caught the attention of policymakers and financial institutions; this week the International Monetary Fund urged stronger governance mechanisms to be put in place at the LME.

The LME has said that its decisions during the nickel crisis were a response to “unprecedented” events that posed a systemic risk to its market. It’s committed to reviewing the actions of all participants, including the exchange itself, and taking the appropriate steps to restore confidence and support the long-term health and efficiency of the market, a spokeswoman said. 

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