NEW YORK The
London Metal Exchange has applied to be a foreign board of
trade in the United States, a move that has led to increased
scrutiny by the US regulator of its warehousing system.
director in the market oversight division of the US Commodity
Futures Trading Commission (CFTC), said that the LMEs
application had led the regulator to evaluate whether the long
queues to access metal in LME-approved warehouses were the
cause of high premiums for physical delivery.
"The issue requires
some degree of evaluation by the CFTC as it relates to the LME
application for registration as a foreign board of trade,"
McGonagle told a subcommittee of the US senate committee on
banking, housing and urban affairs Jan. 15.
He said the CFTC was
"engaged with the LME" on the warehousing issue and was also
discussing the rule changes following the metals
exchanges consultation with members last year.
"[Warehousing and the
queues] are an area to be explored by the CFTC through the
LMEs application," McGonagle said, noting that the
regulator would always evaluate the markets to find any
activity it deemed to be intended to manipulate prices.
According to the CFTC
website, the LMEs application dates back to August 2012
and is pending. A further 21 applications from other
international exchanges are pending, with the Alberta,
Canada-based Natural Gas Exchange the only application for
which a registration order has been issued.
Premiums for physical
delivery of aluminum have shot up in the past few weeks, with
market participants quoting bids and offers either side of 19
cents per pound. The LME rules were changed after complaints
that long queues to access metal were pushing premiums higher
amm.com, Jan 2).
Since the rule changed was announced, the queues have grown
longer and the premiums have rocketed.