[hot discussion] the Lunni trading storm to be investigated calls for rational treatment in the industry.

After rare extreme volatility in LME nickel futures since March, LME halted nickel trading and cancelled trading results on March 8. In this regard, a number of industry insiders were interviewed to conduct in-depth discussion and analysis on the progress of the Lunni incident and the relevant regulatory system.

The abnormal fluctuation of Lunni is questioned and the price deviates seriously from the fundamentals.

"as early as in early January, it was reported in the circle that a domestic private steel company was facing bullish attacks in the LME nickel market, but I did not expect it to be so deep now." Some people in the industry said that in the Lunni storm, the steel company, as a short seller, almost stood in the open.

Market participants said that the principle of the above-mentioned business of banks is to manage risk with "zero exposure", that is, no matter how many short orders the relevant banks take over, Synchronize will hedge the risk by taking an equal position on the exchange, thus forming "over-the-counter business transactions. Enterprises short, banks do long; in on-the-exchange trading, banks short, other institutions do long." For now, the Lunni incident does not rule out the possibility that it will face more regulatory investigations in the future, when more real details may be released.

In response to the irrational surge in the Lunni market from March 7 to 8, the relevant person in charge of the China Nonferrous Metals Industry Association said that the current nickel price seriously deviates from the fundamentals and loses the guiding significance of the spot price. deviated from the original intention of serving the real economy, causing serious harm to the global nickel and upstream and downstream related industries.

The European Iron and Steel Association also issued a statement saying that regulators should take the necessary action against abnormal volatility, calling for an investigation into the trading practices of some market participants to determine whether they constitute market abuse or lead to market disorder. The group also calls for transparency in the behaviour of market participants beyond normal participation and trading restrictions.

In the face of abnormal fluctuations in the nickel market and doubts from all parties, LME made a further explanation on the decision to suspend trading and cancel trading in a recent announcement. As for the sharp rise in nickel prices on March 7, LME believes that the market was operating in an orderly manner at that time and even at the close of trading in the evening. The cancellation of the market trading result on March 8th is due to the extreme price fluctuations and very little trading volume in the morning, and for the sake of maintaining market stability and order, we hope that the market will return to the previous period when LME believes that the market operates in an orderly manner and the price reasonably reflects the spot market situation, that is, at the close of the previous trading session.

Shenyin Wanguo Futures: analyst Wang Yunfei believes that Lunni rose by 72.67% on March 7, and if you refer to what LME calls "extreme price fluctuations", then trading on March 7 should also be rolled back. At the same time, LME's second basis for canceling the March 8 trading results was slightly less convincing, because although the market volume on March 8 was lower than that on March 7, it was not significantly lower than the historical average.

"it is clear that the settlement price of March 7 should not be considered as the normal trading price. The price of Lunni on that day is far beyond the normal range and cannot be explained by the actual supply and demand of the nickel metal market. It is almost certainly the result of forcing the air out." He said that whether the settlement price of the 7th should be considered as a reasonable transaction price is worth exploring.

Citic Construction Investment Futures: in the view of Wang Yanqing, a metal analyst, LME made this statement helplessly. If you admit that the trading on March 7 was disorderly, then LME should have acted in time on March 7, not March 8. In view of the huge trading volume on March 7, if LME admits its disorderly trading and further cancels the trading results on March 7, it will be more questioned by traders. "

Wang Yanqing said that the trading on March 7 was deemed orderly by the LME and did not show that the day's trading could reasonably reflect the fundamentals, but only the result of LME weighing the pros and cons. Renni has not yet resumed trading, indicating that the differences between the long and short sides still need time to be resolved. However, the Shanghai nickel contract opened the limit in the night trading on March 11, and the market has certain expectations for a stable return of nickel prices in the future. Shanghai nickel pricing function is expected to be strengthened and support spot trade to return to normal.

"the operation of Shanghai Nickel reflects the return of market sentiment and the gradual correction of previous overheating, which also shows that the independent trading logic of the inner plate is gradually being constructed." Wang Yunfei also said that market participants also need to think more about whether the risk of alternative use of some varieties with high price correlation within the same industry is underestimated in the process of hedging. And how to control the scale of hedging in the case of alternative use.

Risk events lead to thinking about the different emphasis of supervision at home and abroad.

Guoxin Futures: gu Fengda, head of the Research and Consulting Department, believes that the enlightenment of the Lunni trading crisis to entity enterprises is that, on the one hand, it is necessary to establish a scientific and effective risk management system, with a variety of risk transfer hedging means and major risk stop loss plans; On the other hand, it is also necessary to strengthen the understanding of the relevant information such as "game rule modification" and "rule interpretation power" in the participating market, especially the transaction delivery and capital risks that may be caused by changes in regulatory policies in extreme cases.

Some people in the industry said that LME needs to provide a fair trading place for the market and is responsible for the smooth operation of the trading system. In response to the Renni trading storm, LME had to announce the suspension of market trading, cancel the trading results on March 8, and add deferred delivery mechanism and position transfer channels, in an attempt to reduce market risk and save the credibility of the exchange.

HKEx: Li Xiaojia, former chief executive, led the acquisition of LME when he was at the helm of the HKEx. On the Renni incident, he said that the LME market is a market between large investors, it is a spot exchange using futures trading as a means, the participants are mainly large global institutions, and what is needed is market supremacy and efficiency supremacy.

In Li Xiaojia's view, the domestic futures market is a market that focuses on the protection of investors and pays more attention to fairness and protection. It cannot be said in isolation that the domestic market is too strict and too much, and the overseas market cannot simply be said to be a mess.

He believes that many of the regulatory means and risk control means of LME are post-positioned, and they are not conventional means to deal with sudden and urgent and huge systemic risks in the market. Most of the time, the market operates on its own, and occasionally such emergencies occur. When the market is basically out of order and may have a systematic impact on the capital adequacy ratio of market participants and market liquidity, LME will act, and generally this kind of selling will be relatively heavy. But this may only happen once in 10,000 times.

"fundamentally, the lack of timely supervision and deterrent punishment mechanism in the market is the breeding ground for such extreme events." Some market participants said that LME's special trading methods and loose market supervision are important reasons for the occurrence of the risk event. The extreme market leads to the violation of the actual supply and demand of metal prices, which brings damage to the long-term development of the market.

Huatai Futures: according to Xu Wenyu, director of macro strategy research of the Research Institute, while emphasizing the role of the market, the exchange should also improve the rules and mechanisms of the market, and need to realize that marketization is a means, not an end. "it is true that market means can improve the efficiency of price discovery and guide the effective allocation of financial resources, but the market will not only emphasize efficiency, but also magnify disorder in a certain period of time." He said that when there are abnormal fluctuations in the market, affecting the efficiency of market price discovery and allocation, it is necessary to "patch" the market mechanism.

Wang Yanqing believes that the Lunni incident exposed that a "free" market still needs to be regulated. Futures price is a signal to reflect the relationship between supply and demand in the market, which can help the market to achieve a dynamic balance between supply and demand, but in extreme cases, price signals also fail, which requires a "visible hand" to help the price take effect again.

"the domestic futures market will strongly regulate abnormal market trading behavior, especially against market manipulation." Wang Yanqing added that in terms of institutional setup, the limit board system can effectively slow down and restrain the sharp rise and fall caused by sudden events and excessive speculation, and the position restriction system and large reporting system help to prevent market manipulation and promote fair transactions. In addition, in view of the continuous rise and fall limit of the variety, the domestic exchange also has a corresponding plan to deal with.