Loading ...This article specifically talks about the arbitrage that is developing between the Crimex and the Shanghai Hold exchange:
But if the price set in the Shanghai physical market is higher than in the paper markets — reflecting the different aims of the respective sets of traders — then it becomes profitable for holders of long futures contracts in the West to demand delivery of the metal, ship it to China and sell it at the higher Shanghai price.
Once this process gets going it will quickly clear out the inventories of the Western exchanges, leaving nothing for future arbitrageurs. The exchanges will then force those wanting delivery to accept cash instead, in effect defaulting on their promises. Then it’s game over, with the big futures manipulators no longer a factor in pricing.