(Bloomberg) -- The London Metal Exchange’s clearing house plans to triple capital requirements for members in the latest reform aimed at strengthening the market following the nickel short-squeeze crisis more than two years ago.
LME Clear is proposing to raise the minimum net capital required from members to $30 million from $10 million, it said on Thursday — a move that’s likely to raise the barriers to entry for any potential new players on the 147-year-old exchange.
It’s one of an array of steps the LME has taken in the wake of the nickel crisis in March 2022 that threw the viability of the market into doubt. The exchange sparked widespread fury by retroactively canceling $12 billion of trades booked as prices spiked, arguing that allowing them to stand would have led to the bankruptcy of numerous clearing members and trigger a “death spiral” through the market.
Read: What Really Happened the Night the Nickel Market Broke
The LME’s clearing members include all category 1, 2 and 3 members — a diverse group comprising small, specialist brokers as well as units of large banks.
“This is intended to increase confidence in members’ ability to respond to stresses and therefore enhance the resilience of the LME’s market and its membership,” LME Clear said in a notice to members.
LME Clear is also proposing several other changes to the rules governing defaults. The changes are subject to a consultation over the next month, though they have already been discussed with members at various advisory committees, according to the notice.
Michael Carty, LME Clear’s chief executive officer, said in a statement that the move was “designed to increase transparency, predictability and overall resilience for clearing members and market participants more broadly.”
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