LME and SHFE may collaborate following critique of risk management

The London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) are hinting at a potential collaboration in the wake of criticisms over the LME’s handling of a market crisis. At the CRU World Conference Asia, Zhang Bizhen, managing director at Minmetals Futures Co, pointed out the shortcomings in LME’s risk control systems, referencing the 2022 nickel short squeeze that led to a significant trading halt and the cancellation of transactions worth billions.

Zhang, who did not hold back on his critique, suggested that LME should consider adopting some of the strategies implemented by SHFE to enhance investor security. This comment comes after a tumultuous period for the LME, which faced intense scrutiny following an unprecedented surge in nickel prices in March 2022. The volatility was so extreme that it prompted the exchange to suspend trading and later annul a number of trades, a move that was controversial among market participants.

In response to Zhang’s comments, Robin Martin, LME’s market development head, acknowledged their relationship with SHFE as complementary. He indicated that despite past challenges, both exchanges could look forward to working together. Martin’s hint at future collaborations suggests that LME is open to learning from SHFE’s approach to risk management and possibly integrating some of its practices to prevent similar incidents from occurring.

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