The OFT has been asked to look at the metals market after MPs learned that big traders could get an unfair advantage from their ownership of warehouses
The Office of Fair Trading is considering an investigation into whether the market for metals trading is anti-competitive after MPs raised concerns that many of the warehouses used in the industry were owned by big commodities traders.
As part of an investigation into strategically important metals, the Commons science and technology committee learned that four large metals traders also ran warehouses, raising fears they could gain an unfair advantage through access to sensitive information about the activities of rival traders.
JP Morgan owns the warehousing company Henry Bath, Goldman Sachs owns Metro, commodity trader Trafigura owns NEMS and Glencore owns Pacorini.
"We would be concerned if the ownership of metals storage warehouses by a dominant dealer on the London Metals Exchange were to be anti-competitive. We would also be concerned if a dealer were undermining the effective functioning of the market and would look for assurance the market is functioning satisfactorily," the committee said in its report, which has been passed to the OFT.
Giving evidence at a science and technology hearing last week, Anthony Lipmann, managing director of the Lipmann Walton metals trader and former chairman of the Minor Metals Trade Association, said: "There are four very large companies that own the very warehouses that people deliver metal into. JPMorgan is one of them. They own a company called Henry Bath. They are, therefore, a ring-dealing member of the exchange and they also own the warehouse. That is restrictive."
Lipmann said the ownership of warehouses by traders, though legal, represented a clear conflict of interest because it enabled traders to see the activities of rivals, which could have a bearing on prices. "I don't believe Chinese walls are at all sufficient," he said.
A spokesman for the London Metals Exchange said: "Ownership of warehousing by trading companies is not new and there are clear and robust regulations in place concerning this issue, regulations are under constant review by the LME and our regulator the FSA to ensure the market operates in a fair, transparent and orderly manner."
A spokesman for the OFT said: "We will respond to the select committee shortly and will consider any complaints we might receive on the report."
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