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Regulators urged to probe metals markets abuse
If they were serious, they could start with their own central bank, the Bank of England.
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By Patrick Jenkins and Jack Farchy
Financial Times, London
Sunday, November 10, 2013
http://www.ft.com/intl/cms/s/0/c8c50b88-48a1-11e3-a3ef-00144feabdc0.html
Britain's parliamentary financial watchdog has urged regulators to probe potential abuses in metals markets as deeply as they are investigating the ongoing scandals over foreign exchange and Libor benchmark interest rates.
Andrew Tyrie, chairman of the Treasury select committee, told the Financial Times that MPs were conscious of growing concerns that the manipulation of rates -- already exposed in the Libor affair, and now under investigation in a mounting regulatory probe into potential forex abuses -- may go well beyond those areas and into metals markets.
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"It is essential that the regulators do a thorough job to stamp out market fixing," Mr Tyrie said. "By the look of it, there is a great deal for them to do. The Treasury Committee will be looking closely at their conclusions."
Other members of the cross-party committee privately echoed Mr Tyrie's concerns about metals markets.
The Libor scandal has cost banks and brokers $3.5 billion in regulatory fines and some experts believe a brewing scandal around alleged foreign exchange manipulation could be even costlier, with regulators on three continents now investigating the affair.
Aluminium consumers have thrust the clubby metals industry into the glare of the regulatory spotlight in recent months, alleging that the price of the metal has been artificially inflated. In the United States, the Commodity Futures Trading Commission and the Department of Justice have launched probes into metals warehouses, where long queues for delivery have been the subject of heavy criticism. The UK's Financial Conduct Authority has not begun a formal probe of metals pricing, though it appeared obliquely critical of the London Metal Exchange last week. In a statement welcoming an initiative to shorten waiting times at LME-registered warehouses, the regulator said it would continue to monitor the LME's progress in "increasing the transparency of its market."
London is the home of global benchmark prices for industrial metals such as copper, aluminium, and zinc, which are traded on the LME, as well as precious metals, such as silver and gold.
Like Libor, both sets of benchmarks are set by a small group of banks and brokers. However, the benchmarks are set by thousands of actual transactions, rather than the theoretical price quotes used in Libor calculations. In a system that is comparable with the foreign exchange market, precious metals prices are set during intraday "fixings," while industrial metals prices are decided through the LME's open-outcry ring.
Warehouses with long queues have been bidding in the market for additional metal to be deposited in their sheds, an action that aluminium buyers such as MillerCoors, the brewer, allege has restricted supplies and inflated their costs.
The LME's warehousing initiative last week, which promised a crackdown on any "abusive" behaviour by warehouses as well as a new rule to shorten queues, was an attempt to restore its reputation.
The FCA has stepped up its engagement with the metals exchange in recent months, people familiar with the situation said, as well as hiring external consultants to help it better understand the physical markets.
The LME said in a statement that it had a "close and continuous relationship" with its regulator, including close engagement over the warehousing reforms. "There is no investigation of the LME by the FCA of which we are aware," it added.
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