London Nickel Controversy (stainless steel fittings)| London Metal Exchange said it will not reopen on Friday, there are banks self-examined derivatives business risks

Reporter Chen Jialing reports from Beijing

In the early morning of March 11, Beijing time, the London Metal Exchange (LME) once again issued a situation statement on the nickel futures incident. In addition to announcing that the trading of London nickel futures would not resume on Friday, it also gave a statement on the suspension and rollback of related transactions in the middle of the week. for further explanation.

It is worth noting that in this announcement, the London Metal Exchange bluntly stated: "The sharp rise in prices on Tuesday has created systemic risks to the market."

This is the seventh related announcement issued by the LME since the "epic short squeeze" of London Nickel on March 7. Previously, the exchange had announced the suspension of nickel futures contract trading, the cancellation of the March 8 trading results, and plans to set up and down rates.

In addition, the reporter of "China Business News" also learned that, affected by the abnormal market situation of London nickel, some domestic banks are conducting self-inspection on all derivatives business recently.

Volatility on Tuesday poses systemic risk

In the above announcement, the London Metal Exchange stated that the criteria for resuming nickel trading in London had been clearly given in previous announcements: ensuring procedures to safely restart trading, and exploring the possibility of netting long and short positions before restarting. sex. However, these conditions have not been met so far, so the nickel futures market will not restart on March 11 (Friday).

Regarding the specific progress, the exchange stated that it is planning to set up price ranges for all contracts that require physical delivery, such as nickel, and will issue a further announcement in the near future. In terms of net settlement of long and short positions, the initial market reaction was not positive. , especially for short positions, and there is also considerable difference between long and short sides on the appropriate settlement price.

In addition, the London Metal Exchange also provided further clarification on the suspension and rollback of trading on Tuesday.

It is understood that the exchange has been concerned about the impact of the Russian-Ukrainian conflict, especially the nickel market in an environment of low inventories and high price volatility.

"The price of nickel futures has risen sharply this week, but the exchange believes that trading activity is still in an orderly state until the close of Monday night." The London Metal Exchange said, "But from the early hours of Tuesday morning, the price of nickel futures began to rise. There has been a sharp rise in a short period of time, which clearly shows that the pricing in this part of the time does not reflect the actual physical market. When the market is out of order, the exchange decided to suspend trading after consulting the clearing company, and canceled it based on the consideration of maintaining market stability and integrity All transactions after 0:00 on the 8th, and the market returned to the state before it got out of control, that is, the closing price of the previous trading day."

The exchange further emphasized that the reason for this decision is that the sharp price increase on Tuesday has created a systemic risk to the market. Taking margin as an example, if the exchange does not take action, it is likely to exceed the level that the LME market has experienced. . Exchanges and clearing houses are deeply concerned about the ability of some market participants to meet margin requirements, potentially triggering a significant risk of a series of defaults, reducing the ability of market participants to continue to enter the market and manage risk.

The analysis of the interviewed futures industry analysts pointed out that due to the sharp rise in futures prices, the trading liquidity of both long and short participants in the London nickel trading market has shrunk sharply, and even brought huge trading risks to futures market makers, and brokers may also face additional credit losses.

The reporter noticed that from the current measures of the London Stock Exchange, including the suspension of nickel futures trading, the cancellation of the trading results on March 8, and the net settlement of long and short positions, the main purpose is to reduce the risk of short-side default and long-side transactions as much as possible first. cost, and guide this market to gradually restore transaction liquidity.

Banks Investigate Risks in Derivatives Business

In this market risk of the abnormally soaring nickel price, in addition to traders such as Tsingshan Holding Group Co., Ltd. (hereinafter referred to as "Tsingshan Group"), as brokers, some overseas subsidiaries of banks are also involved.

Some bank executives said that banks will not directly engage in commodity futures business, but at most do structured products linked to commodity-related indices. Nickel is too small to be directly involved.

A person from the financial market department of a bank revealed: "I have indeed heard that some institutions are self-inspecting all derivatives business." The person also said that most domestic banks should not be affected by the recent nickel incident, and it may be involved overseas subsidiaries of some banks.

According to media reports, CCB International (Holdings) Limited (hereinafter referred to as "CCB International"), a wholly-owned subsidiary of China Construction Bank (5.960, -0.09, -1.49%) in Hong Kong, has a trading seat in the London Metal Exchange and is On-site members are one of the brokers of Tsingshan Group this time.

Our reporter learned that the business process for companies to participate in London nickel futures and other transactions is usually: trading corporate customers first open an account with an institution (such as CCB International, etc.), and then place an order to the institution when they want to conduct futures trading, and the institution will then go to the transaction. Place an order on site. When a margin call is required, the exchange will first chase the traders on the floor (i.e. CCB International), and then the latter will chase corporate clients.

The non-ferrous metal industry research report of Huachuang Securities on March 9 pointed out: "According to the closing price of LME nickel at US$50,000/ton on March 7, the margin is US$6 billion, and it is highly likely that CCB will still advance, and then a company in Zhejiang will raise funds. Repay it to CCB. The debt can be repaid with the annual profit of a company in Zhejiang of about 20 billion yuan."

It is worth noting that on March 8, when the London nickel futures market rose sharply, Tian Guoli, chairman of China Construction Bank, called on Weng Zuliang, chairman of China Minmetals Group, to reach a consensus on the future in-depth strategic cooperation between the two parties. Ji Zhihong, Vice President of China Construction Bank, Liu Fanggen, General Manager of the Financial Market Department, Guo Wenqing, General Manager of China Minmetals Group, Liu Caiming, Jiao Jian and Zhu Kebing, Deputy General Managers attended the meeting.

"Minmetals Group is a state-owned enterprise founded in non-ferrous metal trade, indicating that China Construction Bank has begun to seek professional company support and carry out self-help. On March 9, Tsingshan Group announced that it would replace domestic metal nickel plates with its high matte nickel plates, and had already deployed spot products through various channels for delivery.

In addition, the above-mentioned research report also pointed out that the Hong Kong Stock Exchange, as the major shareholder of LME, is helpful to solve the problem, but the LME shot is more to resolve market risks, without intervention or direct liquidation. It was also a blank check.

In addition to financial institutions, the impact of the nickel incident has also radiated to the upstream and downstream of the domestic industrial chain. The person in charge of the futures department of a domestic non-ferrous metal industry enterprise told this reporter: "The price has risen too fast. If calculated according to the price before the suspension of trading on March 8, each imported ton of raw materials will lose 300,000 to 400,000 yuan. Companies in the upstream and downstream of the industrial chain are all on the sidelines. For small and medium-sized processing enterprises, it may have a great impact, because they have no means to stabilize prices.