Samuel Shen and Xie Ya

HONG KONG/SHANGHAI – Three people familiar with the situation said that China’s securities regulators have been gathering data from futures brokers about clients’ nickel short positions to avoid spillover risk from rocketing prices.

After nickel prices reached record highs of over $100,000 per tonne, the London Metal Exchange intervened Tuesday in order to stabilize the market. This was due to Western sanctions that threatened Russia’s supply.

After nickel prices surged three consecutive days, China’s Shanghai Futures Exchange stopped trading in nickel on Thursday. Some of the nickel futures contracts would be traded on the exchange starting March 11.

According to one source, the China Securities Regulatory Commission has asked local bureaus for future brokerage information regarding how many short-term nickel positions their clients may have as a result.

Source said that the regulators also requested information from futures brokers within their jurisdictions about their hedging and the availability of nickel for delivery.

There was no immediate information on what, if any action, might be taken after these details have been submitted.

According to the second source, regulators are concerned because brokerages will need to compensate clients if they cannot pay their margin calls.

The CSRC overseeing the futures market did not respond when we asked for comments.

Because they were not authorized to discuss media matters, all sources have declined to identify themselves.

According to a separate source, a large futures broker reported that the Shanghai Futures Exchange approached the brokerage directly and asked for information about its risk management measures and about the big clients it has trading nickel and co.

China’s banks regulators requested that foreign lenders be reported to CSRC in an effort to reduce the potential impact of volatility on global commodity prices.

In China, “the violent price movements of futures’ contracts are likely to expose brokerage companies to losses,” said Wang Yunfei, an analyst with ShenYin & WanGuo Futures Co, a Shanghai based futures broker.

“Losses can quickly surpass the deposit in a broker’s account, if prices for nickel continue to climb. A client who fails to pay his deposits and the broker that fails to close positions on time could suffer losses.

According to Wednesday’s data, the largest short positions in nickel contracts were held by Guotai Junan Futures and Citic Futures.

China’s securities regulators can access market data, such as daily trading volumes and the short and long positions that each brokerage firm holds for any particular contract.

Industry insiders say they may be trying to learn more about the betting strategies of major investors as they attempt to make early decisions and not lose their brokerage firms to concentrated bets.

According to the second source, in developed markets “futures brokers would perform careful credibility checks on their clients.”

The source said that opening a Chinese futures account was relatively easy, making brokerages less secure.