booboouberbear - NICKEL14 Mar 2022 19:24
The Matt Levine Money Stuff Bloomberg opinion column / Money Stuff email has a long explanation. Below is an extract; unfortunately the Bloomberg will not open the article without trickery.
'Some brokers on the exchange did not have the money to meet margin calls, and continuing to trade would have bankrupted them. So the London Metal Exchange decided, never mind:
By now, Tsingshan wasn’t the only nickel company that was struggling—just the biggest. Many producers, traders, and users of nickel with short positions on the LME were facing margin calls many times larger than they were prepared for. “When it was flying towards $100,000, you could feel the damage, and you knew companies were fighting for their existence,” says John Browning, founding partner of brokerage Bands Financial Ltd. and a former LME board member.
At the current price of nickel, the brokers themselves wouldn’t be able to pay their margin calls, they told the LME. Four or five of the brokerages that are LME members would have failed, a shock that could have devastated the global metals industry. The price move on March 8 “created a systemic risk to the market,” the LME said two days later. The exchange had “serious concerns about the ability of market participants to meet their resulting margin calls, raising the significant risk of multiple defaults.” Despite that, [LME Chief Executive Oficer Matthew] Chamberlain insisted to Bloomberg TV on March 9 that the solvency of the LME itself was never in doubt.
The LME made a near-unprecedented decision. It decided to cancel all the trades that took place on Tuesday morning—$3.9 billion of them, according to a Bloomberg calculation. Exchanges sometimes cancel trades when technology glitches or “fat fingers” cause one-off mistakes. But it’s extremely unusual for an exchange to cancel whole sessions of trading after the fact. Crucially, the decision meant traders wouldn’t need to pay margin calls on the basis of the $80,000 nickel price. Effectively, it rewound the market to the moment when prices closed on Monday at $48,078.
Traders who were short nickel would have been bankrupted at $80,000, so the LME cut the price back to $48,078 to keep them afloat.'
I highly recommend subscribing to the Money Stuff daily email:
https://www.bloomberg.com/account/newsletters/money-stuff?source=msweb
Sign In
Follow the stocks
