Chinese tycoon Xiang Guangda has been bailed out by JP Morgan after receiving a whopping $8 billion margin call.
The margin call came about as he was shorting Nickel.
The commodity short squeezed leaving the Chinese tycoon with an $8 billion margin call.
Xiang told banks he wanted to keep shorting Nickel and shrugged off suggestions to reduce his short positions, Bloomberg.
Should this even be allowed?
Let’s discuss it.
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Chinese tycoon gets away with $8 billion margin call
The tycoon whose big short bet on nickel helped trigger one of the most dramatic price spikes in history has told his banks and brokers that he doesn’t intend to reduce his position, according to Bloomberg.
The London Metal Exchange halted trading in nickel after prices spiked as much as 250% in two days.
Xiang has told the roughly 10 banks that he still believes prices will fall and that he would like to keep his short position.
The LME acknowledged that short sellers weren’t going to voluntarily reduce their short positions.
It said there were “considerable differences in view on the appropriate price.”
Apparently big net worth short sellers make the rules.
They Chinese Tycoon secured a deal with JP Morgan and China Construction Bank that would allow it to avoid defaulting on its $8 billion margin call.
LME halts Nickel trades
The LME cancelled $4 billion in transactions as Nickel prices began to surge.
The exchange said: “Nickel will be deemed a disrupted session and all agreed trades during this session will be null and void.”
In other words, they took away the ‘buy’ button and are allowing short sellers to either close their positions or profit on the way down.
Dave Lauer says the exchange is ruining their credibility by protecting very wealthy and powerful people/firms.
“You can’t run a market like this, busting trades at someone’s whim.”
The halts are similar to those that occurred last year during the ‘meme stock’ frenzy when Robinhood froze the purchasing of GameStop, AMC, and other heavily shorted stock.
At some point, the people will cause an uproar.
What are your thoughts on the matter?
Big banks are beginning to bail out wealthy people and firms.
What can be done about it and what should be done about it?
The Chinese tycoon is only one example, but what will happen when heavily shorted stock begin to squeeze again?
Leave your thoughts in the comment section below and share this article to raise awareness to the injustices in the markets.