* JPMorgan paring large silver short position-FT
* Says does not hold 90 pct of LME copper stock warrants
* In spotlight as U.S. moves ahead on tougher regulations
(Add details, exchange-set limits)
By Frank Tang
NEW YORK, Dec 14 JPMorgan's (JPM.N) commodity
business was uncomfortably in the spotlight on both sides of
the Atlantic on Tuesday amid reports it had amassed a large
copper long position and was unwinding a big silver short.
While analysts and traders have said both positions could
be tied to the bank's large customer trading business rather
than any proprietary strategy, the reports have placed the bank
in the public eye at a time when U.S. and European regulators
are cracking down on commodity market concentration.
The bank, which joined Goldman Sachs (GS.N) and Morgan
Stanley (MS.N) at the top tier among commodity traders with the
acquisition of the RBS-Sempra operations earlier this year, is
reducing a large position in U.S. silver futures, the Financial
Times reported on Tuesday, citing a source familiar with the
In Europe, data from the London Metal Exchange showed that
a single entity had increased its control over warehouse copper
stocks and cash contracts to more than 90 percent, up from a
50-80 percent holding reported for the past several weeks.
A spokesman for JP Morgan, which had been reported as
holding the 50-80 percent position, denied that it held over 90
percent of stock warrants, but declined comment on whether it
had a dominant position of less than that. [ID:nLDE6BD1U5]
A JPMorgan spokeswoman in New York declined immediate
comment when contacted by Reuters.
The company's silver futures positions would be "materially
smaller" in the future, the FT reported the source as saying.
In October, JPMorgan and HSBC Holdings Plc (HSBA.L) were
hit with two lawsuits in late October by investors who accused
them of conspiring to drive down silver prices, and reaping an
estimated hundreds of millions of dollars in profit.
Open interest in U.S. silver futures SIc1 has declined by
nearly 20 percent since November, while prices have surged to
30-year peaks, trends that market analysts say suggest that
short covering has helped fuel the gains. Prior to November,
however, open interest had risen, suggesting bullish longs.
JP Morgan and HSBC were accused in the lawsuit of
manipulating the market for COMEX silver futures and options
contracts from the first half of 2008 by amassing huge short
positions in silver futures contracts that are designed to
profit when prices fall.
If they have been selling futures without an offsetting
hedge since 2008, the banks would have missed out on the
biggest silver rally since the Hunt Brothers attempted to
corner the market 30 years ago.
Recently, prices have surged three-fold, topping $30 an
ounce last week, strongly outperforming gold in the past few
Graphic on prices and open interest:
FT story: link.reuters.com/pyw89q
Factbox on U.S. exchange-set metals position limits
On the LME, traders and analysts say the so-called dominant
position -- which is not unusual in LME metals -- was unlikely
to be sustained and that it was probably a combination of many
positions, including client holdings and positions held by
proprietary traders. [ID:nLDE6B51X4]
The revelations come just two days before the U.S.
Commodity Futures Trading Commission is set to propose position
limits for U.S. swaps and futures contracts, rules that would
prohibit any single company from holding more than a pre-set
share of any given commodity derivative.
But most commodity exchanges already have so-called
"accountability limits" that they use to prevent any trader
from accumulating an overly large position.
A spokesman for the CME Group (CME.O), which owns the COMEX
market where U.S. silver futures are traded and sets and
enforces its own position limits, did not immediately return
requests for comment.
According to CME Group's NYMEX rulebook, which also
regulates its COMEX metals division, the exchange set both its
all-month accountability as well as any one-month
accountability levels at 6,000 contracts, with the
expiration-month limit at 3,000 lots.
CME NYMEX rulebook:
Normally, market participants, including commercial banks
and trading houses, rarely exceed exchange position limits
because of the cash margin requirements for large positions.
Exchanges do not reveal customer names when position limits are
Allegations of malfeasance in the relatively small, niche
silver market predate the latest drive to clamp down on
commodity markets and stem from persistent complaints from
smaller players that prices are under the sway of big banks.
The CFTC began probing allegations of silver price
manipulation in September 2008, but the paper said in two
previous reviews of the silver market, the CFTC has dismissed
claims of manipulation.
U.S. silver futures barely moved on the news, with the
benchmark March silver contract SIH1 off 0.3 percent at
$29.50 an ounce on the COMEX division of NYMEX on Tuesday.
Federal regulators and aggrieved investors face an uphill
battle to prove allegations that two of the biggest silver
trading firms are manipulating the market, if history is any
The lawsuits highlighted the challenges faced by the
Commodity Futures Trading Commission, which has put fighting
price manipulation and fraud high on its agenda for reforming
financial markets. [ID:nN01210936]
(Repoting by Frank Tang and Nicholas Trevethan; Editing by
Jonathan Leff and Alden Bentley)