Metals traders told not to delete files
Regulator may finally act after complaints over warehouse businesses, prices
The US commodities market regulator has put Wall Street banks and other big traders on notice for a possible investigation of their metals warehousing businesses following years of complaints about inflated prices.
The US Commodity Futures Trading Commission (CFTC) sent a letter to firms last week ordering them to preserve e-mails, documents and instant messages from the past three years, two sources who received the letters said.
The notice amounted to a "warning shot" before a probable formal probe, one of the sources said.
If there is an investigation, it would be the first by any regulator into the lucrative and controversial industry, which since 2010 has become dominated by banks including Goldman Sachs and JP Morgan Chase and global merchant traders like Glencore Xstrata and Trafigura.
The letter from the CFTC's enforcement division did not refer to an investigation, but the do-not-destroy order touched on some of the most sensitive issues in a controversy that has plagued the London Metal Exchange, now owned by Hong Kong Exchanges and Clearing, for years.
The CFTC said the firms should retain communication related to incentives or premiums given to metal producers in exchange for storing metal; daily loading rates; high load-out requests; delivery policies and procedures and complaints about load-out requests.
At least two companies involved in warehousing received the letter, but sources said they believed such notices were sent to all the major players.
If there is a probe, it is not clear how or when that could take place.
In the past three years, a mountain of aluminium and other metals has accumulated in the global warehouses that are part of the LME network, clogging the trading system and causing lengthy queues - up to a year - as consumers and dealers of the metal seek to get their hands on it.
The queues have caused the price premium on some metals to surge, prompting accusations that banks and traders are artificially inflating prices and distorting supplies.
After years of complaints from end-users such as Novelis, the world's biggest maker of flat-rolled aluminium, regulators are looking into the industry.
Late on Friday, the Federal Reserve Board said it was rethinking a decade-old decision that allowed banks to trade in physical commodities. The US Senate banking committee will hold its first hearing on the matter today.
The enquiry could also increase pressure on Britain's Financial Conduct Authority, which has regulatory oversight of the LME, to delve into the industry, sources said.
Warehouses in the LME system were traditionally independent, but since 2010 four of the six largest players have been bought by investment banks or traders.
