London 09/08/2013 - The Financial Conduct Authority (FCA) will wait until the end of the LME’s consultation process over warehousing before deciding if it should launch an investigation, a source close to the matter said.
At the start of last month, the LME proposed new regulations to reduce queues that stretch to more than 12 months at some warehouses by making warehouse companies with sheds where waits exceed 100 days deliver out up to one-and-a-half times more metal than they take in.
The consultation period will last until September 30, with a final decision on whether to implement the changes expected at the scheduled board meeting in October.
“Consumers have been in touch with the FCA,” the source said. “[The FCA] urges consumers to respond to the consultation period, and it would then be logical to take a view on the matter then.”
The UK financial watchdog regulates and supervises the exchange, which is recognised investment exchange (RIE), and commodities futures markets in general but has no direct authority over physical markets or over warehousers.
Still, it may investigate whether the LME is operating in line with regulation, it said, after the scrutiny of warehousing become more intense - in recent weeks the US Federal Reserve will review its 2003 decision to allow banks to move into the physical commodity business and the US Senate has questioned whether commercial banks should be allowed to own oil pipelines, power plants and metals warehouses.
And two US lawsuits have been filed this month, both of which allege anti-competitive and monopolistic behaviour in the warehousing market in connection with aluminium prices. Both name the LME and Goldman Sachs; JP Morgan Chase & Co and Glencore Xstrata were also named in the second suit.
The LME has previously stressed that feedback is critical in the consultation process and welcomed comments from its members.
The exchange is asking users "Is this a route you want to take?", chief operating officer Diarmuid O’Hegarty told journalists at a press conference back in July.
“The board will have to use its judgement on not just what’s been said but who is saying it… [The LME is] interested in hearing from a broader spectrum - it will be a balance thing,” O’Hegarty added. "It’s not a numbers game - it’s a group of people that make a collective response. It’s the coherence of what people are saying that is important."
As a rule, the FCA cannot confirm if it is conducting an investigation, a spokesman said.
“We remain in constant contact with the FCA,” an LME representative also said, adding that it cannot provide comment on individual matters.
(Editing by Mark Shaw)