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Manipulation of Metals Futures: Lessons from Sumitomo

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  • Gilbert, Christopher L

Abstract

The Sumitomo Corporation manipulated the London Metal Exchange (LME) copper price, which forms the pricing basis for the world copper market, from at least 1991 until earlier this year. This manipulation has concentrated attention on the functioning and governance of London futures markets, and in particular of the LME. This paper argues that futures market manipulation is not illegal under UK financial services regulation, but that in any case, deterrence is better than prosecution. Manipulation will be best deterred by greater transparency, in particular through mandatory reporting of client positions to exchanges, but also through the publication of suitably aggregated positions data. While there is no evidence that the LME has been insufficiently active in attempting to eliminate manipulations, price discovery on futures markets generates an externality that justifies the regulator seeking even higher standards in the future.

Suggested Citation

  • Gilbert, Christopher L, 1997. "Manipulation of Metals Futures: Lessons from Sumitomo," CEPR Discussion Papers 1537, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1537
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    Citations

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    Cited by:

    1. Holmberg, Pär & Willems, Bert, 2015. "Relaxing competition through speculation: Committing to a negative supply slope," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 236-266.
    2. Xiangyu Chen & Jittima Tongurai, 2021. "The Relationship Between China’s Real Estate Market and Industrial Metals Futures Market: Evidence from Non-price Measures of the Real Estate Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(4), pages 527-561, December.
    3. Pirrong, Craig, 2017. "The economics of commodity market manipulation: A survey," Journal of Commodity Markets, Elsevier, vol. 5(C), pages 1-17.
    4. Barry A. Goss & S. Gulay Avsar, 2013. "Simultaneity, Forecasting and Profits in London Copper Futures," Australian Economic Papers, Wiley Blackwell, vol. 52(2), pages 79-96, June.
    5. Guy Meunier, 2011. "Imperfect Competition and Long-term Contracts in Electricity Markets: Some Lessons from Theoretical Models," Chapters, in: Jean-Michel Glachant & Dominique Finon & Adrien de Hauteclocque (ed.), Competition, Contracts and Electricity Markets, chapter 6, Edward Elgar Publishing.
    6. Triantafyllopoulos, Kostas, 2006. "Multivariate discount weighted regression and local level models," Computational Statistics & Data Analysis, Elsevier, vol. 50(12), pages 3702-3720, August.

    More about this item

    Keywords

    Copper; Corners; Futures; Manipulation; OTCs; Regulation; Self Regulation; Squeezes;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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