CEO of LME(London Metal Exchange) Matthew Chamberlain talks about short squeeze

Thank you very much for having me.

So as you say, the eighth of March, Tuesday, was a very difficult day at the LME. We'd already the previous day seen the nickel price rise quite significantly, but on that Tuesday the nickel price increased over a hundred percent, hitting $100,000 a ton. And it very quickly became apparent that the pricing had disconnected from the fundamental physical realities of our market, and it was therefore necessary to step in and take action because otherwise we believe there would have been very significant systemic risks to our market and to the broader physical industry if we were allowing trades to happen at those levels. So we did take that decision to step in, to suspend trading, to reverse the trades which had happened on the basis of this market disorder. And I'm glad that we did that because it soon became apparent that the pricing activity had been driven not just by fundamentals in the physical market but also by the fact that there was a big technical impact of a significant short player in the market and the impact of a short squeeze. So I absolutely understand the magnitude of what we did. I understand there are a lot of people who don't agree with what we did, and I absolutely respect their views, and I understand that many of them are very upset with our actions. But the way that we got through the day, to answer your question, was to step in and take that action because otherwise I think there would have been far more negative market consequences.

Well, we've been clear that this situation really originated in the over-the-counter market. The vast majority of these positions were not held on the LME, and hence they weren't positions that we could monitor and oversee and check that they were stable. And that caused very significant problems because we didn't have the visibility at LME as to what was happening, and that made it much more difficult to take proactive decisions. So to my mind, the biggest contributory factor here was this very big OTC position, and I think a big thing that we'll have to look at going forward is how we stop that happening again.

So I think it's really important to say that we don't take decisions based on the nationality of our members or our participants in the market. The fact is that we take decisions based on what is right for the market. So as you say, there was a very large Chinese short position holder, but it's probably natural that if there's a large position holder on our market, there's a good chance they'll be Chinese because China is just so significant in the global metals markets. So I really want to emphasize that we didn't take any of these decisions because of the nationality of any of the participants involved. We took the decisions because of the size and the scale of the situation, and we would have done exactly the same whatever the nationality of the players involved, because ultimately this was about preserving market stability and systemic integrity for the benefit of players around the world.

I don't want to talk about any individual market participant; it wouldn't be right for me to comment. But what I would say at a systemic level is that we believe the steps that we've taken to give the market time to find balance, to find the right level, and then the daily price limits that we now have in place, which means that the price of any metal can't go up or down more than 15% on any single day, means that we feel that the situation has been stabilized. Now, let's be clear: we will still have to find the correct price of nickel. The nickel price has been going down for the last few days and got down to about $28,000 a ton, but actually in the last couple of days it's been going up and it actually hit its limit up. So it's very clear to me that there is still a degree of volatility in the global nickel market. I think we see that on other exchanges as well, and therefore we're not yet in a position where everything is entirely stable, but with our price limits we believe we're in a position that market volatility shouldn't have a systemic impact on the exchange.

So we had to put in place the daily price limits in a very short period of time, including delivering the technology. We feel 15% is an appropriate level because historically the metals don't move 15% at all frequently, so it feels like a price limit that will allow on the vast majority of days the markets to continue to trade as normal, but will provide protection in extraordinary times like we're seeing with nickel at the moment.

So we do intend to keep the daily limit permanently. It's not something that the LME's market has ever really wanted in the past, but we feel that given the experience of the last few weeks, it's important to keep it there permanently. And we'll of course be looking at all other lessons learned, including whether as I mentioned earlier there should be greater disclosure around the OTC market and other steps that the LME could take to avoid a situation like this ever happening again.

I certainly think that we have a lot of work to do to rebuild trust. Even though, as I say, I don't believe the issue originates on the LME; the issue originated on the OTC market. We have to be conscious that a lot of our stakeholders feel that this has been a difficult time for them, and I understand that. We have to understand that as an organization. So I do think we have work to do to rebuild that trust, rebuild that bond with our physical and our financial partners, and that's something that the LME will absolutely be investing its time in.

Yeah, well I think it's important to note that the geopolitical factors are present in all of the metals. And actually, with the exception of nickel, the other metals have behaved in an orderly manner. Their prices have clearly gone up as you would expect given the geopolitical factors, but that's been really within the stress limits that we would expect. So actually, I think the market has done a good job of responding to the geopolitical situation. The difference with nickel is that there was this additional technical challenge with the large short position, and that's really what has caused the difficulties. But from a geopolitical situation position, we continue to monitor closely. But overall, I think the market has worked in reflecting the price impact of those developments.

Only to say that we absolutely value all of our business in China. As I say, we didn't take decisions based on the nationality of our participants; we would never do that. But you know, we do recognize that a large portion of our business comes from China, and we're always happy to discuss with our Chinese friends, as with any of our customers around the world, how we can build a better market.