rom at least 1991 until 1996, the Sumitomo Corporation manipulated the London Metal Exchange (LME) copper price, which forms the pricing basis for the world copper market. This manipulation resulted in substantial departures of the LME price from fundamental values, and concentrated attention on the functioning and governance of London futures markets in general, and of the LME in particular.

In Discussion Paper No. 1537, Christopher Gilbert notes that, in contrast to the United States, futures market manipulation is not illegal under UK financial services regulation, but argues that, in any case, deterrence is better than prosecution. US experience indicates that, even with clear legislation, it is very difficult to bring successful prosecutions against futures manipulation. Manipulation will be best deterred instead by greater transparency, in particular through mandatory reporting of client positions to exchanges, but also through the publication of suitably aggregated positions data. The LME differs in a number of respects from standard futures markets and one effect of these differences is to render manipulation more difficult on the LME. But the differences also imply that, when it does occur, manipulation of the LME has more serious consequences. While there is no evidence that the LME has been insufficiently active in attempting to eliminate manipulations, price discovery on futures markets generates an externality that justifies the regulator seeking even higher standards in the future.

Manipulation of Metals Futures: Lessons from Sumitomo
Christopher L Gilbert