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Without looking I'd bet this is some kind of "anti-hoarding" provision, probably intended to prevent single manufacturers from cornering the market. As is typic

Without looking I'd bet this is some kind of "anti-hoarding" provision, probably intended to prevent single manufacturers from cornering the market. As is typical, it caused exactly the opposite of the desired consequence. In your first sentence you admit you don't know what's going on, then in your second sentence you claim that "it caused exactly the opposite of the desired consequence." The point being, this could be an old rule that's worked well until just recently, as far as you know. It's possible it's done more good than ill. In any case, it's described as an "industry rule," not a government regulation, as your quote makes clear. It's the result of industry "self-regulation." The article mentions this. The shuffle of stock is an end-run around that rule, but it's not the cause of the higher prices. The delay-to-raise-prices scam would be easier to run and more profitable if the rule that makes the shuffle necessary didn't exist.

temphn 13y ago
You prompted me to dig in further to see what the source of the underlying distortionary rule is. Looks like the LME or London Metal Exchange[1]. But that in turn is governed by the government[2]. And the government, including the CFTC which governs the LME, has indeed passed distortionary "anti-hoarding" laws in allied areas[3]. See links below. The key question is whether the LME is free to change these rules and/or purchasers are free to use another exchange in response to Goldman's attempt to increase prices. If they are not so free - if, say, the LME's rule here is imposed to be compliant with some CFTC or SEC or equivalent provision - then we are back to where we started. Conversely, if the participants are free to use another exchange or start a competing one, then this issue is on the level of Zynga spamming Facebook - a dispute between two powerful private parties that will be worked out via LME countermeasures/competition rather than federal regulation. [1] http://www.reuters.com/article/2011/07/29/us-lme-warehousing-idUSTRE76R3YZ20110729 http://www.reuters.com/article/2011/07/29/us-lme-warehousing... Goldman's warehouse business relies on a lucrative opportunity enabled by the LME regulations. Those rules allow warehouses to release only a fraction of their inventories per day, much less than the metal that is regularly taken in for storage. [2] https://www.lme.com/en-gb/regulation/ https://www.lme.com/en-gb/regulation/ The Exchange provides the environment for trading and regulates the operation of the market. It has a statutory requirement to ensure that business on its markets is conducted in an orderly manner, providing proper protection to investors. Approved as a recognised investment exchange (RIE) and conforming with UK and other international regulatory requirements, the LME offers, through price and volume transparency and audit trails, a legally safe forum for metals trading. As an RIE, the Exchange comes under the direct jurisdiction of the UK Financial Conduct Authority (FCA). Regulation of the market is largely carried out by the LME, while the FCA is responsible for regulating the financial soundness and conduct of LME members' business. Beyond this, both the Exchange and its members are subject to regulatory controls and input from various UK bodies and government offices, as well as EU directives. In international trading, rules applied by overseas regulatory bodies such as the US Commodity Futures Trading Commission (CFTC) also have to be taken into account. To ensure the observance of these regulations, the LME has a compliance department under the supervision of the Executive Director of Regulation & Compliance. [3] http://finance.fortune.cnn.com/2011/10/19/cftc-commodities-regulations/ http://finance.fortune.cnn.com/2011/10/19/cftc-commodities-r... The Commodity Futures Trading Commission approved new limits on commodities traders. Now analysts want to know what will happen next. FORTUNE -- Is the cure for speculation in the energy markets worse than the illness? Futures industry professionals are up in arms over a vote by regulators Tuesday to introduce position limits on hedge funds and other traders, saying it will lead to commodity hoarding and large price spikes in the futures. The CFTC decision (the full text is here) places various limits on how much a speculative trader, like a hedge fund or ETF manager, can hold in any of 28 commodity contracts, including energy. The aim is to prevent a run-up like June 2008 when oil hit $140 a barrel which ultimately introduced $4 a gallon gasoline at the pumps. The problem is, according to futures analysts, if speculators aren't allowed to buy the futures, they'll buy the physical commodity instead. "Eventually you're going to see a shortage, I think it's going to create a disruption in the marketplace. We might get away with it for some time, but if there's a crisis like 2008 you'll see one," Phil Flynn, the energy analyst at PFG Best, a Chicago brokerage, told me this morning (he also lets loose on his morning market commentary). Similarly, if less ominously, CME Group (CME) chairman Terry Duffy told CNBC yesterday ahead of the CFTC vote that passage would "encourage manipulation" of the markets.
- Lagged2Death 13y ago
  The key question is whether the LME is free to change these rules... They did change them, that's where the 3,000 number came from, did you even read this story? ...if the participants are free to use another exchange or start a competing one... I don't see how that's likely to help. First of all, the metal suppliers have an incentive to use Goldman's warehouses and thus the Goldman-controlled exchange, since Goldman's paying them a kickback. Secondly, if enough metal is going through the LME, that sets the de-facto market price and you'd be daft to sell your Al for less than that, wouldn't you?
  - temphn 13y ago
    You're so hostile that you kick the ball into your own net. My question was whether LME was free to "change" the rule by abolishing it, or whether this was related to an underlying CFTC compliance issue. Because trying to increase the stringency of the rule did nothing: Martin Abbott, the head of the exchange, said at the time that he did not believe that the warehouse delays were causing the problem. But the group tried to quiet the furor by imposing new regulations that doubled the amount of metal that the warehouses are required to ship each day — from 1,500 tons to 3,000 tons. But few metal traders or manufacturers believed that the move would settle the issue. This does not argue in favor of your tacit position that we just need more rules, or more men with guns to enforce them.

temphn 13y ago

You prompted me to dig in further to see what the source of the underlying distortionary rule is. Looks like the LME or London Metal Exchange[1]. But that in turn is governed by the government[2]. And the government, including the CFTC which governs the LME, has indeed passed distortionary "anti-hoarding" laws in allied areas[3]. See links below. The key question is whether the LME is free to change these rules and/or purchasers are free to use another exchange in response to Goldman's attempt to increase prices. If they are not so free - if, say, the LME's rule here is imposed to be compliant with some CFTC or SEC or equivalent provision - then we are back to where we started. Conversely, if the participants are free to use another exchange or start a competing one, then this issue is on the level of Zynga spamming Facebook - a dispute between two powerful private parties that will be worked out via LME countermeasures/competition rather than federal regulation. [1] http://www.reuters.com/article/2011/07/29/us-lme-warehousing-idUSTRE76R3YZ20110729 http://www.reuters.com/article/2011/07/29/us-lme-warehousing... Goldman's warehouse business relies on a lucrative opportunity enabled by the LME regulations. Those rules allow warehouses to release only a fraction of their inventories per day, much less than the metal that is regularly taken in for storage. [2] https://www.lme.com/en-gb/regulation/ https://www.lme.com/en-gb/regulation/ The Exchange provides the environment for trading and regulates the operation of the market. It has a statutory requirement to ensure that business on its markets is conducted in an orderly manner, providing proper protection to investors. Approved as a recognised investment exchange (RIE) and conforming with UK and other international regulatory requirements, the LME offers, through price and volume transparency and audit trails, a legally safe forum for metals trading. As an RIE, the Exchange comes under the direct jurisdiction of the UK Financial Conduct Authority (FCA). Regulation of the market is largely carried out by the LME, while the FCA is responsible for regulating the financial soundness and conduct of LME members' business. Beyond this, both the Exchange and its members are subject to regulatory controls and input from various UK bodies and government offices, as well as EU directives. In international trading, rules applied by overseas regulatory bodies such as the US Commodity Futures Trading Commission (CFTC) also have to be taken into account. To ensure the observance of these regulations, the LME has a compliance department under the supervision of the Executive Director of Regulation & Compliance. [3] http://finance.fortune.cnn.com/2011/10/19/cftc-commodities-regulations/ http://finance.fortune.cnn.com/2011/10/19/cftc-commodities-r... The Commodity Futures Trading Commission approved new limits on commodities traders. Now analysts want to know what will happen next. FORTUNE -- Is the cure for speculation in the energy markets worse than the illness? Futures industry professionals are up in arms over a vote by regulators Tuesday to introduce position limits on hedge funds and other traders, saying it will lead to commodity hoarding and large price spikes in the futures. The CFTC decision (the full text is here) places various limits on how much a speculative trader, like a hedge fund or ETF manager, can hold in any of 28 commodity contracts, including energy. The aim is to prevent a run-up like June 2008 when oil hit $140 a barrel which ultimately introduced $4 a gallon gasoline at the pumps. The problem is, according to futures analysts, if speculators aren't allowed to buy the futures, they'll buy the physical commodity instead. "Eventually you're going to see a shortage, I think it's going to create a disruption in the marketplace. We might get away with it for some time, but if there's a crisis like 2008 you'll see one," Phil Flynn, the energy analyst at PFG Best, a Chicago brokerage, told me this morning (he also lets loose on his morning market commentary). Similarly, if less ominously, CME Group (CME) chairman Terry Duffy told CNBC yesterday ahead of the CFTC vote that passage would "encourage manipulation" of the markets.

Lagged2Death 13y ago
The key question is whether the LME is free to change these rules... They did change them, that's where the 3,000 number came from, did you even read this story? ...if the participants are free to use another exchange or start a competing one... I don't see how that's likely to help. First of all, the metal suppliers have an incentive to use Goldman's warehouses and thus the Goldman-controlled exchange, since Goldman's paying them a kickback. Secondly, if enough metal is going through the LME, that sets the de-facto market price and you'd be daft to sell your Al for less than that, wouldn't you?
- temphn 13y ago
  You're so hostile that you kick the ball into your own net. My question was whether LME was free to "change" the rule by abolishing it, or whether this was related to an underlying CFTC compliance issue. Because trying to increase the stringency of the rule did nothing: Martin Abbott, the head of the exchange, said at the time that he did not believe that the warehouse delays were causing the problem. But the group tried to quiet the furor by imposing new regulations that doubled the amount of metal that the warehouses are required to ship each day — from 1,500 tons to 3,000 tons. But few metal traders or manufacturers believed that the move would settle the issue. This does not argue in favor of your tacit position that we just need more rules, or more men with guns to enforce them.