London Metal Exchange considering extension of LMEsword warrant oversight

The London Metal Exchange is considering whether its electronic LMEsword system could be used to oversee metal stored outside the exchange, an executive said on Tuesday, the latest sign that a financing fraud on the mainland is still roiling banks and trading.

The world’s oldest and biggest metals market had received requests from several banks that finance big tonnages of metal to look into expanding LMEsword, which proves the origin and title to LME-warranted metal, beyond exchange stock, LME’s head of business development, Matt Chamberlain, said.

In the wake of a storage scandal in Qingdao port last year, banks and merchants have had to find new ways to keep track of the millions of tonnes of metal they are financing on behalf of customers outside of the exchange.

“We have been asked several times to look at whether LMEsword could be used to provide certainty over ownership over more than LME metal,” Chamberlain said.

He would not say when the exchange might announce a possible move, but said it was a need for the market “right now”.

In a scandal that surfaced in June, a private metals trading firm, Decheng Mining, allegedly duplicated warehouse certificates stored at Qingdao to pledge a metal cargo multiple times as collateral for bank loans.