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‘Big Shot’ Blows Up London Metal Exchange With Big Short
Things took a turn for the absurd on Tuesday, when the LME was forced to suspend the nickel market after a truly silly squeeze pushed prices beyond $100,000 a ton.
"The LME... has been monitoring the market and the effect of the evolving situation in Russia and Ukraine," a member notice said. "It is evident that this has affected the nickel market in particular."
It was, indeed, quite "evident." The figure (below) is simultaneously incredible and meaningless.
That's chaos precipitated by ma
Trades are being reversed? What is this elementary school kick ball “Do over, we need a do over”
Exchanges will change up rules to cater to whales that fuck up. CBOE does it for fat finger trades, I’m sure others as well. It’s like the house comping a suite to a high roller, you want to keep that revenue source coming back for more.
A commodity producer, using futures or other financial contracts on that commodity to hedge its physical production, normally expects that those futures bear some reasonable relationship to the physical spot. To the extent they don’t, the usefulness of the futures market is reduced and ultimately the role of the exchange could be threatened. It is in the exchange’s interest, I would think, that financial nickel doesn’t go stratospheric in price or vol and bankrupt the exchange’s customers. I’m kind of surprised that there aren’t daily limits or circuit breakers or similar on these instruments as a normal matter.
I’m surprised the exchange doesn’t allow producers to hedge their shorts, at least partially, with proven reserves. One learns something new every day.