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Those all seem like legit problems that need to be handled, but none of them justify LME's super-corrupt "solution" of "take-backsies for big/high-status trader

by SilasX 5y ago

Those all seem like legit problems that need to be handled, but none of them justify LME's super-corrupt "solution" of "take-backsies for big/high-status traders, but brutal market discipline for Gary Greentext on WallStreetBets". Don't like short squeezes? Then don't allow naked shorting (which, contra the confused author, this was). The trades could have been satisfied but for an extra transaction? Natively support the transaction. The nickel doesn't meet the spec? Create a new category for it, or don't support it to begin with. In no case is a sane solution to play favorites with overleveraged traders.

kasey_junk 5y ago
I’m super sympathetic to the argument that the LME overreached here (and if I made my living trading there I’d be reevaluating my participation). But I don’t believe this was as corrupt as you are claiming. First naked shorting in commodities futures is a completely different proposition than in equities. Failure to deliver in commodities can be quite literally the risk you are trying to hedge. The market is supposed to account for this! The idea that a market should atomically support every form of financing independent of company fundamentals is perhaps a goal to work towards but not anything market participants believe exists. And as for nickel not meeting the contract? This is a classic case of a continuous signal having to meet a discrete measurement goal. When, where, why and how you assay are important for the discrete signal but both unnecessary and overly complex for the real world goals. Most of the nickel in the world doesn’t meet LME contract spec (neither does WTi crude for that matter) but that doesn’t matter so long as the market displays orderly pricing, to remove that assumption is to destroy commodities futures markets.
- MrMan 5y ago
  the LME is plainly and explicitly trying to protect natural traders in this one outlying instance, because they dont have the flexibility that speculators do. I recently started to trade some contracts on LME after many years of considering it too archaic to contemplate, but its a great source of liquidity for many metals and cant at least up until now be neglected. there is no reason another exchange couldn't subsume some of the trade on the LME, but the tension between speculators and natural traders won't go away.

by SilasX 5y ago

kasey_junk 5y ago

I’m super sympathetic to the argument that the LME overreached here (and if I made my living trading there I’d be reevaluating my participation). But I don’t believe this was as corrupt as you are claiming. First naked shorting in commodities futures is a completely different proposition than in equities. Failure to deliver in commodities can be quite literally the risk you are trying to hedge. The market is supposed to account for this! The idea that a market should atomically support every form of financing independent of company fundamentals is perhaps a goal to work towards but not anything market participants believe exists. And as for nickel not meeting the contract? This is a classic case of a continuous signal having to meet a discrete measurement goal. When, where, why and how you assay are important for the discrete signal but both unnecessary and overly complex for the real world goals. Most of the nickel in the world doesn’t meet LME contract spec (neither does WTi crude for that matter) but that doesn’t matter so long as the market displays orderly pricing, to remove that assumption is to destroy commodities futures markets.

MrMan 5y ago
the LME is plainly and explicitly trying to protect natural traders in this one outlying instance, because they dont have the flexibility that speculators do. I recently started to trade some contracts on LME after many years of considering it too archaic to contemplate, but its a great source of liquidity for many metals and cant at least up until now be neglected. there is no reason another exchange couldn't subsume some of the trade on the LME, but the tension between speculators and natural traders won't go away.