| On May 9, three-month copper futures - the London Metal Exchange's and hence the world's benchmark - reached $2,715.50 a tonne. It was the highest price of the year. On the surface, it looked like a sort of triumph - with the LME's turnover up 700% since 1987 and its business far outweighing that of its major rivals, the exchange was surely as good an instrument of price formation as was going to be found in an imperfect world. On June 13, at a press conference after the annual meeting of the LME board, just hours before Sumitomo announced that Yasuo Hamanaka, its chief copper trader, had been fired after running up estimated losses of $1.8 billion, LME chairman David King was lauding the "unique qualities" of the exchange and its runaway success. The news from Sumitomo was a shock to outsiders, but those on the floor clearly knew what was afoot. With rumours of Hamanaka's sidelining and then dismissal circulating, the futures price plummeted by a quarter from its May 9 peak. An adjustment was under way, but why had it taken so long? Was the LME's success - it handles 90% of the world's trades in copper - built on the fact that it offered an efficient price-forming mechanism, or did participants just like the light regulatory touch? The rise of the LME was dramatic. |