The London Metal Exchange (LME) announced a suspension of trading and revised trading rules after the “epic short squeeze” of lunni. However, the demon of “demon nickel” has become a landmark event that has caused a sensation in the global international financial market.
In an interview with Chinese reporters from securities companies, many experts in China’s futures industry said that in the past two years, Chinese funds have had frequent risk accidents in overseas financial markets, especially the negative oil price in the United States in 2020 and the “demon nickel” this time. Overseas institutions have made “legal robbery” by taking advantage of rule loopholes, and the vicious operation is obvious. In contrast, China’s futures market, after more than 30 years of development, has formed a complete and mature risk control and supervision system, covering both before and after the event. Penetration supervision is implemented, and the risk control system is in the leading position in the world.
the above-mentioned persons further called for continuing to give full play to the efficient role of the futures market in global resource allocation, improving the internationalization level of China’s futures market, expanding and strengthening China’s futures market and attracting more foreign funds to participate. In order to avoid the repetition of China’s economic stability and effectiveness, the stability and effectiveness of China’s industrial chain can be improved
suspend the nickel market, cancel abnormal transactions, and LME rare rapid response offers unconventional measures
On March 8, LME urgently announced the suspension of nickel trading, and it is expected that nickel trading will not be restarted before March 11, that is, Friday. LME also decided to cancel all nickel transactions executed on the OTC and LME select screen trading system on or after 00:00 a.m. UK time on March 8, 2022, and postpone the delivery of all spot nickel contracts originally scheduled to be delivered on March 9, 2022.
“LME was forced to cancel the unconventional measures of abnormal trading, which just shows the abnormal trading in the international nickel market recently.” Guo Shiying, chief economist of Yide futures, believes that the rare market in special periods has added many difficulties to risk disposal march 9, Castle Peak group responded that it would replace China’s metal nickel sector with its high matte nickel, which has been allocated to sufficient spot for delivery through various channels
Wuchan Zhongda Group Co.Ltd(600704) futures Deputy General Manager Jing Chuan said, “this LME measure should be the most positive in many incidents, which also shows that the initiative of relevant Chinese parties is effective for quickly resolving the incident.” Looking back on history, due to the fact that there is no limit on the positions held by large LME investors, it has occurred from time to time that opponents use the rules to close positions. This time, Castle Peak Group’s large proportion of positions, excessive concentration of contracts, too small amount of deliverable spot or inability to deliver according to standard warehouse receipts are the main reasons for being hunted by overseas institutions.
Jingchuan believes that under the LME market maker system, there are no corresponding restrictions on the proportion of large positions, and there are no necessary requirements for contract positions and deliverable warehouse receipts in recent months, which often leads to excessive positions and concentration of some enterprises, resulting in delivery bottlenecks. Although the newly proposed deferred delivery is beneficial to the source of delivery organized by the hedging party, in fact, it is still difficult to achieve full delivery in the short term, and losses are inevitable.
China Securities Co.Ltd(601066) futures nonferrous metals researcher Wang Yanqing believes that the trading system of LME market has also become the driving factor of this market. After Russia was sanctioned by Europe and the United States, the delivery scope of lunni futures has changed significantly, but LME did not respond adequately in advance. Afterwards, although LME took corresponding measures to cancel some transactions, it has caused harm to the market itself.
Gu Fengda, an analyst at Guosen futures, said that LME’s risk control system does not have a large reporting system, which is limited to the management of clearing members, and LME’s dispute resolution mechanism is different from other commodity exchanges, which is ruled by LME’s arbitration committee according to practice, Therefore, it has a relatively different mechanism from China Futures Exchange in terms of regulatory rules and dispute resolution mechanism.
“negative oil price” is the first and “demon nickel” is the second. Overseas institutions take advantage of loopholes in the rules to “legally rob”
Although the participants in Sichuan do not attach the same importance to the negative operation of the international oil price in 2020 as those in the United States.
On April 20, 2020, two years ago, the negative oil price issue of the New York Mercantile Exchange (NYMEX) has vividly demonstrated the behavior of European and American funds to deliberately use loopholes in market trading rules to make huge profits. At that time, the may contract of WTI crude oil futures was delivered on April 21. As a result, the oil tank at the delivery place was full and could not be delivered.
After the investigation report shows that before April 17th, some speculative funds have filled the delivery tank, resulting in no delivery. Moreover, the US exchange has long foreseen negative oil prices and revised trading rules to allow crude oil futures to be settled at negative prices. The trading system supporting negative prices was officially launched on April 5 of that year.
As a result, the price of us WTI crude oil futures in the may contract on April 21 once fell to -40.32 US dollars / barrel and closed at -37.63 US dollars / barrel, plummeting 300%, setting a negative record for the first time in history. At that time, Bank Of China Limited(601988) which had not completed the warehouse transfer suffered heavy losses. To date, no agency has been charged.
In the London nickel closing event, it is also the issue of delivery warehouse. A very important point is that overseas institutions control about 80% of nickel warehouse receipts and a large number of long positions in recent months in LME warehouse. Currently, pacorini (Glencore’s warehousing company) and other four companies operate 505 LME registered warehouses, accounting for 76% of the total number of warehouses. The trading positions of Glencore, Goldman Sachs, JPMorgan Chase and other institutions are surprisingly matched with the changes of inventory and warehouse receipts in their respective warehouses. Thus, these international investment banks have also become the main force in the short market.
Zhou Weigang, an analyst at Jinrui futures, said that the current position squeeze in lunni market is a long-standing short squeeze, and the conflict between Russia and Ukraine is only the fuse of the event. As the world’s major metal trading market, LME market is characterized by market maker system and membership system. Since there is no position limit and rise and fall version system in China’s futures market, warehouse receipts are also easy to be controlled, and information transparency is poor, some enterprises that gather resources and information advantages have repeatedly performed short selling or position squeeze behavior.
supply chain and industrial chain security are inseparable from the strong Chinese futures market
“This time, Qingshan group is facing the problem of cross hedging that does not meet the delivery grade varieties, rather than whether the hedging itself should be. China should make use of China’s position as the world’s largest importer of raw materials and make greater efforts to build China’s futures market into a global pricing center.
”Yu mengguo, general manager of Jinpeng futures, believes that only by improving the internationalization level of China’s futures market and forming China’s price influence commensurate with China’s economic scale, can we effectively improve the security, stability and competitiveness of China’s industrial chain and supply chain, and avoid the recurrence of similar events.
Compared with the frequent occurrence of financial risk accidents in overseas financial markets in the past two years, after more than 30 years of development, China’s futures market has formed a complete and mature risk control and supervision system, covering both before and after the event, and implementing penetrating supervision. The risk control system can be said to be a global leader.
Over the past decade, China has experienced market shocks such as the global financial crisis in 2008, the abnormal fluctuation of the stock market in 2015 and the sharp fluctuation of the price of black series varieties since 2016. China’s commodity futures market has been able to withstand the test, always maintained safe and stable operation, and there have been no risk events in trading, trading, clearing and other businesses.
supervision methods: at present, China has formed a set of effective supervision concepts and methods with Chinese characteristics, and established and improved risk management systems and mechanisms such as futures price limit adjustment, trading margin adjustment, handling fee management, forced liquidation, abnormal transaction monitoring, market monitoring The technical systems related to risk disposal have been continuously upgraded, which has greatly improved the ability to prevent risks such as market operation and delivery
In addition, under the existing mature regulatory system, in case of emergencies and extreme market, China Futures Exchange will start from maintaining the overall situation of stability, make more active use of the “toolbox” of risk control, resolutely curb overheated trading and maintain the safe and stable operation of the market.
For example, in the past year, the exchange has adjusted the handling fee standard and margin ratio of nickel varieties for many times, including on March 8, the handling fee standard of daily closing trading of some nickel futures contracts was increased from 3 yuan / hand and 15 yuan / hand to 60 yuan / hand. For soybean meal, corn, palm oil, iron ore, coking coal, coke and other volatile varieties, Dachang exchange has successively adopted measures such as raising the standard of margin and handling fee, implementing and tightening the trading limit, and has handled 161 abnormal trading behaviors and 12 illegal trading clues, resolutely preventing and curbing excessive speculative trading and severely cracking down on illegal behaviors.
Jingchuan believes that a series of measures in the Chinese market, such as the approval of hedging positions, the restrictions on the proportion of large positions, the margin requirements of spot monthly contracts and the investigation and handling of related party transactions, have limited the occurrence of similar vicious position squeeze to a certain extent. Obviously, China’s exchanges have more restrictions, and their guidance is to give play to the market function objectively, healthily and orderly. Overseas exchanges are more about providing trading platforms and advocating liberalization and objective disclosure of information in the system to realize the market functioncenter>
