LONDON Feb 15 Following the introduction of new
market abuse regulation last year, the London Metal Exchange did
not submit any suspicious transaction order reports (STORs) for
three months, setting off alarm bells at the UK regulator, metal
industry sources said.
Suspicion of a failure to ensure adequate surveillance
processes caused the Financial Conduct Authority (FCA) to
investigate and issue an informal warning, they added.
The Market Abuse Regulation became effective across the
European Union on July 3. Firms and trading venues in Britain
can submit STORs through the FCA's website.
"The LME didn't submit any STORs after the new regulation
came in until after September," a source close to the matter
The LME and FCA declined to comment.
Some sources said the LME having to vacate its Finsbury
Square offices between July 18 and Sept. 1 due to structural
issues may have exacerbated the problem, but that the main issue
There was also internal discord over the push to attract
high-volume funds, brokers said.
That, they said, was a concern for Charles Li, chief
executive of parent Hong Kong Exchanges & Clearing,
which bought the 140-year old exchange in 2012 for $2.2 billion.
An average 31 percent fee increase at the start of 2015
prompted consumers and producers to abandon the exchange in
favour of over-the-counter (OTC) trade, hitting LME volumes.
The downtrend was reinforced last year by economic and
demand slowdown in China, the world's top consumer of industrial
metals, which subdued prices and activity, triggering an exodus
of funds to other markets with higher return potential.
LME volumes overall in 2016 slid 7.7 percent after a fall of
4.3 percent in 2015. However a 5.6 percent drop in copper
trading compared with a 26.7 percent surge in trade on the U.S.
rival CME Group's exchange, which sources say is easier
and cheaper to use for funds.
(Reporting by Pratima Desai; Editing by David Evans)