Traders slate tarnished SIB copper inquiry

The Securities and Investments Board, the City's most senior regulator, yesterday announced the first stage of its proposed review of the metals market in the wake of the Sumitomo copper-trading scandal - only for the report to be instantly dismissed as a "non-event" by some metals traders.

One European-based metals trader said: "I was expecting a little bit more from the document in terms of explaining where the real problems lie." Another trade argued: "It says nothing about what happened regarding Sumitomo."

The SIB issued a consultative document in which it asks the views of traders and metal end-users how they think metals trading should be regulated both on the London Metal Exchange and off it.

It came as the LME claimed that Sumitomo was repeatedly warned about the activities of Yasuo Hamanaka, the trader who lost the Japanese company pounds 1.2bn though unauthorised copper trades.

"We received assurances from them that they are fully aware of the level of trading and we have documentary evidence to prove this," said Raj Bagri, chairman at the LME.

David King, LME chief executive, added:

"We have a very clear audit trail since 1991 and this has been supplied to our auditors and the Government."

Following repeated allegations of market manipulation made against Mr Hamanaka, known as "Mr Five Per Cent" because of his dominance of copper trading, both he and Mr King visited the SIB in 1991.

Concern heightened after massive copper-trading losses announced in 1993 by Codelco, the Chilean state-owned trading company, which many suspected were the result of sophisticated fraud.

Codelco's losses spurred the first investigation by a UK regulator, the Securities and Futures Authority, into the activities of Winchester Commodities, the metals trading firm owned by Ashley Levett and Charles Vincent, two colourful millionaires now living in Monaco.

The SFA cleared Winchester of wrongdoing earlier this year. However, their homes in the South-east of England were searched earlier this week by detectives acting on behalf of the Serious Fraud Office, which is also involved in the Sumitomo investigation.

SIB's interest in copper trading is known to have led it to oversee in May a series of police raids on private homes and company premises in Guernsey. The regulator indicated yesterday that it, too, had voiced concerns with Sumitomo about Mr Hamanaka's activities.

The SIB report the LME as estimating that the share of its volume now represented by investment business has risen to between 20 and 25 per cent from virtually nothing 10 years ago.

Among the questions asked in the 72-page SIB paper are whether more transparency should be applied to metals trading, whether there is enough clarity over market manipulation, and if existing rules are enough to deal with the problem.

The regulator's decision to issue the its consultative document yesterday was seen by some sources as part of a bid to soothe overseas critics who argue that controls over the London market and parallel over-the-counter trade is too soft.

Comments on the SIB list of questions are being invited by mid-October, with a view to completing the review by the end of the year and publishing a report on the results soon afterwards.

"The interesting bit will obviously be when this thing is published in December," a senior dealer said.

"[The SIB] don't put any particular weighting on particular questions, and they seem to say 'right, you put your own weighting on them'," another added.