The beat on this exchange is heavy metal
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New York's Comex is branded here as ``more speculative'' and prone to price manipulation. Comex officials chuckle a little at that label, considering the recent tin incident.Skip to next paragraph
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Traders on the Metal Exchange had been warned by Pieter De Koening, manager of the buffer stock, that he would insist on delivery of the actual metal specified in futures contracts that he bought. But some traders did not take him seriously and went short. Consequently, when spot prices went up rapidly, these traders were caught in a short squeeze that threatened to leave them financially breathless.
To fulfill their contracts, some would have to go to the main source of actual tin -- the International Tin Council's buffer stock -- and buy it at high prices to be delivered back at lower prices.
When the exchange intervened for a partial rescue of the shorts, the Tin Council buffer stock officials and other holders of actual tin lost potential profits.
Brown holds the action was necessary because the market had become ``disorderly.''
Whatever the situation, the flap has prompted the Comex to look into the possibility of trading in tin futures. It actually did trade in tin when it was founded 50 years ago, but dropped out of the business about 20 years ago.
If the comments of one Comex official are indicative, however, the exchange in New York is not likely to try again with trading tin futures. ``The market for tin is a relatively slow one,'' this official said. ``It would not appear to be appropriate for a United States futures market.''
Tin has relatively few sellers and buyers of metal. Speculators and those hedging against future price changes generally want a large number of businessmen active in a futures market. Otherwise, there is insufficient continuity in trading and risks go up.
In effect, that was the Metal Exchange's problem. The Tin Council's buffer stock could dominate the market. In any case, the council and the exchange have recently settled their dispute. ``That has now been solved,'' Brown says.
At another time, the European Community had to step in to break up a six-nation cartel of European zinc producers that had been fixing prices and trying to influence the LME free market.
In general, however, the exchange sees the prices on its markets as those set by the free play of supply and demand. With metals prices extremely low at present, producers, especially those in the developing countries, often wonder whether prices are manipulated.
So far the exchange, founded in 1877, has been self-regulated. It has 98 companies as members, of which 28 are ring dealer members. Some fraudulent trading has increased pressures for the creation of a government regulatory body, somewhat along the lines of Washington's Commodity Futures Trading Commission (CFTC).
``We don't want a CFTC, but something along those lines is necessary,'' says chief executive Brown. ``We in the industry have been unable to regulate the crooks. But probably it is taking a sledgehammer to crack a nut.''
Legislation is now before the British Parliament calling for the creation of a Securities Investment Board for the regulation of both stock and futures exchanges in Britain, with the help of self-regulating agencies within the financial industry. It is expected to become law on Jan. 1, 1987.