Matt Levine had a pretty entertaining explanation of a different incident earlier this year, involving futures contracts:
> JPMorgan, which does not make batteries or cars, bought bags of abstract nickel years ago. It took delivery of that nickel, not in the sense that a truck full of nickel showed up on Park Avenue but in the sense that an entry was made, on the ledger of the warehouse, saying that the bags of nickel in Row X, Shelf Y now belonged to JPMorgan.
> JPMorgan then used that nickel for its intended purposes for years. Those purposes were to write financial contracts referencing that nickel. The nickel worked perfectly well for those purposes — JPMorgan’s derivative contracts traded and paid off normally — for years, even though the nickel was not in fact nickel, just bags of rocks.
> And then one day a warehouse worker, like, stubbed his toe against JPMorgan’s nickel and was like “hmm that’s not the sound nickel makes when you kick it” and opened the bags and found rocks. And then the [London Metal Exchange] dutifully reported that some nickel was not nickel, and JPMorgan’s nickel warrants were transformed into rocks warrants. But it’s all just a random accident? The purpose of JPMorgan’s nickel was not to be turned into batteries or cars, but to sit in a warehouse. It was doing a great job of that, until someone noticed!
https://www.bloomberg.com/opinion/articles/2023-03-21/jpmorg...