(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON, Sept 14 Maybe it's because it's the lead
If a warehouse company had submitted incorrect copper stocks
figures to the London Metal Exchange (LME) for three weeks, it
might have expected a bigger fine than 30,000 pounds ($40,000).
Which is what Worldwide Warehouse Solutions (WWS), the LME
logistics arm of Noble Group, has been hit with for supplying
wrong lead stocks figures for metal stored at the Dutch port of
But this is lead we're talking about. And although the
original misreporting fiasco back in February and March enraged
lead traders, it's not the sort of story to generate outraged
headlines in the mainstream media.
Still, at least we get an answer to the riddle of what
exactly happened with those phantom lead stocks, which simply
Graphic on Vlissingen lead stocks:
Graphic on Vlissingen phantom "arrivals" and price:
NOT OUT, NOT IN
The first anyone knew that all was not right with the LME
lead stock count at Vlissingen was on March 8, when the exchange
issued a short notice to members titled "Vlissingen Stock
"Please note that 31,700mt (metric tonnes) of Lead in
Vlissingen will show in the stock report published 09 March 2016
as a delivery out. Please be advised this is not a physical
delivery out but a correction of an earlier error in reporting
by the Warehouse."
The tonnage corresponded to two apparent "inflows" of lead,
the first of 18,425 tonnes, the second of 13,275 tonnes, in the
LME daily stocks reports of Feb. 17 and Feb. 19 respectively.
Cue much head-scratching among the relatively small
community of physical lead traders active in the LME market.
Although relatively large, the original "arrivals" were not
out of keeping with lead stocks movements at the time, given a
protracted "warehousing war" that saw large tonnages taken out
of the system only to be relocated at Vlissingen and the South
Korean port of Busan.
However, these particular "arrivals" were no such thing.
Rather, WWS incorrectly instructed its London agent to issue
new warrants for 1,268 lots of lead, when it should have told it
to reissue warrants for metal that had previously been
That would have simply rebalanced the ratio of cancelled to
open tonnage and left total registered tonnage at Vlissingen
unchanged at 56,725 tonnes.
Instead, it looked as if fresh metal had arrived, lifting
Vlissingen lead stocks by 56 percent to 88,425 tonnes.
It took WWS three weeks to realise there had been a mistake,
at which stage it notified the LME, which then issued its
"DUE SKILL, CARE AND DILIGENCE"
The LME has now reached an agreed settlement with WWS,
whereby the latter will pay that 30,000-pound fine and the costs
of an additional audit to check the company has put in place new
measures to stop a similar mistake happening in future.
WWS was found to have breached three clauses of the LME's
The two most serious were Clause 11.1, requiring warehouse
companies to conduct their business with "due skill, care and
diligence", and Clause 11.8, requiring an operator to "organise
and control its affairs in a responsible manner, keep proper
records (and) ensure that its employees or agents are suitable,
adequately trained and properly supervised".
The mitigating circumstances were that WWS had fully
cooperated with the LME investigation, that the misreporting was
down to "human errors", that it had notified the exchange
immediately on discovering its mistakes and that it had
appointed an independent auditor to tighten its procedures.
Not mentioned is the fact that the wrong instructions were
issued twice, that it took three weeks for anyone to notice and
that the original misreporting may have actually generated a
But then, this is only the lead market, not copper, or
heaven forbid, aluminium, a market in which LME warehousing has
grabbed the wrong sorts of headlines in recent years.
THE I-SCALE OF MISDEMEANOUR
WWS is the third warehouse operator to be chastised by the
LME in the last 18 months.
And it's tricky from the outside at least to calibrate the
level of wrongdoing with the resulting fine.
The exchange will argue it judges each case on its relative
merits, although the legal comparison doesn't take into account
the fact the LME is by necessity both judge and jury.
However, the three incidents do fit into what might be
tentatively termed the "I-Scale".
Irresponsibility (see Clause 11.8) sits at the lower end of
the scale leading to a five-figure penalty for WWS.
Next up the scale is ignorance.
CWT got whacked with a 100,000-pound fine in April 2015 for
failing to disclose it had two trading entities within its
extensive corporate group structure.
The LME said it had found no evidence that the lapse was
deliberate or that any confidential evidence was passed between
the warehousing company and the trading entities.
In essence, CWT simply lacked a proper group organisational
chart to show potential conflicts of interest of which it itself
was completely unaware.
Right at the top of the disciplinary scale is infamy.
Metro was fined $10 million for its role in incentivising a
massive load-out queue for aluminium at its sheds in Detroit.
In doing so, it didn't explicitly break any LME rules at the
time, although its actions might certainly be viewed as running
against the spirit of the rule-book.
What it did do, however, was propel the LME into a
regulatory and media firestorm to the extent of making the
exchange the butt of jokes on a popular U.S. current affairs
Misreporting lead stocks, even over three weeks, is never
going to generate that sort of broader reaction.
Watch this space, though.
With heightened LME surveillance of its warehouse operators,
there may be more cases to come to flesh out in more detail the
tentative I-Scale of misdemeanour.
(Editing by Dale Hudson)