Sumitomo Debacle May Trigger Changes At London Exchange Metal Market Officials Scramble To Restore Public Confidence

Regulators will take a closer look at dealings on the London Metal Exchange, a market little known to the public that was thrust into the spotlight by the Sumitomo copper debacle.

The LME seems to acknowledge it needs to restore public confidence in the market where Sumitomo’s former star copper trader, Yasuo Hamanaka, racked up most of his losses.

LME chairman Raj Bagri asked Britain’s Securities and Investments Board for “a review of how best the U.K. regulatory regime can deal with issues involving non-members of the London Metal Exchange and the London Metal Exchange’s role in international metal markets.”

The Sumitomo affair shook the international copper business and has prompted regulatory and criminal investigations in Britain and the United States.

In a sign of stability for the volatile copper markets, the LME said in a statement that trading has remained under control despite wildly swinging prices.

The LME said brokers met their margin calls - the additional money they had to put up due to the decline in copper prices. Crucial June copper trades also cleared the exchange.

SIB chairman Sir Andrew Large agreed to order a review of the metal market and promised a report within six months.

The probe will delve into several issues:

Whether any British brokers violated the law, or financial market regulations.

The regulation of metal, including futures trading and over-the-counter trading for all metals and not just copper.

Rules and internal workings of the LME.

Cooperation among regulators from different countries, such as the U.S. Commodities Futures Trading Commission.

Regulators say Sumitomo has been cooperating in unraveling the crisis that “demonstrated the potentially damaging impact which non-member, and non-regulated, firms can have on the metals market.”

The LME said in a statement last week it had become concerned late last year about Sumitomo’s dealings - even though one copper trader in Vermont says he complained to the LME in writing five years ago about Sumitomo’s trading practices.

A source familiar with financial regulation in Britain said that in each instance, the concerns were relayed to Sumitomo - even though Sumitomo is not subject to regulations on the LME because it is not a member.

In the first instance, in 1991, Sumitomo told the regulators it was satisfied with the way its affairs were being handled. In the second instance, this year, “you can see what happened,” the source told The Associated Press on condition of anonymity.