CFTC keeps a close eye on LME warehousing policies

Commodity Futures Trading Commission is still keeping a close eye on the London Metal Exchange after countless complaints against this 137 year old exchange stating that they are manipulating the price through their warehousing policies.

Timothy Massad, who is the newly installed chairman of the CFTC, spoke to Reuters to state that the regulator is still in touch with LME while it is preparing to launch a new aluminium contract amid the complaints that the global aluminium pricing is faulty.

Massad admitted that they were in dialogue with LME regarding the various issues, which is the first comments in a year on the subject, after Coca-Cola Co (KO.N) and MillerCoors LLC had lodged complaints about the long waiting time for the deliveries and exceptional high prices.

According to consumers, the Wall Street banks like Goldman Sachs group Inc. and major commodity dealers like Glencore Plc have made a business out of aluminium trading by stocking up large amounts of the metal which results in high rent charges and limited delivery rate.

Although Massed declined to comment on the status of the probe, his comments were the first ones on the subject and the most candid since the controversy erupted last summer.

The consumers had been putting increasing pressure on the regulator to oversee the working of the LME and its warehousing network. Although the LME is regulated by the Financial Conduct Authority in UK, in US the CFTC does have jurisdiction over any business they do in the country.

The LME are now trying to rectify the situation by developing a new contract that will also include the premium that is paid over the LME benchmark for physical delivery. This will perhaps cure the yawning gap between the physical market and the futures which is a great concern for consumers. However, the end users are still concerned about the delivery procedures for the new contract.

Massad said, "They're trying to address that and we'll kind of see where they go on that."