The Kunming Fanya Non-ferrous Metal Exchange (FYME) is the world's largest and wealthiest trading platform for rare earth elements. At least that is what shareholders believed until the exchange issued a trading halt for most of its commodities. The Kunming trading house now stands accused of failing to facilitate the selling of futures options worth billions, causing investors to publicly protest and threaten legal action.
Last week, an estimated 800 people gathered outside Fanya headquarters on Kunming's Chongren Street (崇仁街). They demanded to know why they had not been allowed to buy or sell futures that had previously been "guaranteed at any time". Three days later, a similar group showed up at FYME's Shanghai branch.
The protestors represent only a tiny fraction of the 220,000 people nationwide who have a combined 40 billion yuan (US$6.43 billion) tied up in the exchange. Many now claim they cannot access their investments. However, a trading house spokesman made the somewhat perplexing claim that FYME's liquidity was not at issue, but that producing billions of yuan in a short time was difficult. Deng Siji, FYME brand director, told website Global Times:
FYME actually has no payment obligation to investors since it is just a trading platform that provides buying, selling and financing services for enterprises, as well as minor metal investment services. But FYME has been working with investors and companies, and seeking government support, to solve a crisis caused by a high level of investor redemptions.
The run on the market has been caused by at least two factors, not the least of which is an incredibly volatile financial climate across China. Deng also blamed what he labeled "malicious" short-selling by large investment firms. This has led to Fanya's Metal Index composite losing a quarter of its value over the past five months.
Fanya was founded in 2011, and remains China's only government sanctioned non-ferrous metal stock exchange. It experienced massive investment over the past five years by offering a limited portfolio of futures options in obscure elements such as indium and germanium. Business in 2015 had been brisk, with a year-to-date turnover of 325.7 billion yuan (US$52.3 billion). However, the trading house's main index began to fall precipitously in February, and continues to do so now.
It remains unclear if FYME is somehow insolvent and the provincial government seems wary to become involved. Local reporters, investigating Fanya's situation at the Yunnan Securities Regulatory Bureau, were told the exchange did not fall under that agency's purview. Instead, journalists were directed to a second government office, which also claimed no jurisdiction.
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