Chapter 20 - 20 Taking Delivery
The Valier Trading Company was overflowing with merchants bringing in copper they had purchased from the Salieri Trading Company. The trading company's vaults alone did not have enough cash, so they were in a state of scraping together currency from Viscount Karsh and other nobles in the faction to cover those sales.
Furthermore, since they naturally had no place to store such a massive amount of copper, they were having the physical goods placed in the nobles' townhouses. Rather than leaving it in a poor location where it might be stolen and find its way back into the market, it was better to store it in townhouses, even if it meant owing favors to the nobility.
However, unlike the Salieri Trading Company which had prepared in advance, the Valier Trading Company lacked enough wagons, so they instructed the merchants to take their sales contracts and go to each townhouse themselves.
They continued their cornering of the market in this manner, but with only three days left until the final trading day, their cash finally ran dry. Panic-stricken, the mastermind of the buyers, Viscount Karsh, gathered the faction and held an emergency meeting.
At the start of the meeting, Viscount Karsh vented his fury.
"The Salieri Trading Company is still putting massive amounts of physical copper up for sale! Has no one investigated their inventory levels?! Do you actually intend to win!"
Setting aside the fact that he had said he would investigate it himself, he reprimanded Valier and the nobles who had failed to grasp any information. Since nothing good would come of talking back here, none of the nobles spoke.
This only irritated Viscount Karsh further.
In such a situation, the first to open his mouth was Valier.
"Your Excellency, if it has come to this, let us give up on cornering the physical goods and stake our fight on the futures."
"Valier! If the physical price drops, the futures will drop as well!"
Viscount Karsh shouted at Valier with a terrifying countenance. However, Valier explained his aim without being intimidated.
"Your Excellency, the price of the physical goods does not matter. Our open interest is already equivalent to the nation's annual trading volume. If we place more buy orders here, the opposition will be unable to prepare the volume they promised to sell by the delivery date. If that happens, we can immediately recover the losses from the physical goods."
"I see, so there was that move."
Viscount Karsh was convinced by Valier's explanation. The leverage on futures is 100 times. In other words, one can place buy orders with 1/100th the capital of physical goods. If they released their physical holdings to create cash, they could still fight sufficiently.
And the important thing was that the delivery date was approaching. The copper sold by the Salieri Trading Company so far was approximately 1,000 tons. Even if this were released into the market, it would fall far short of the volume being sold in futures. Furthermore, since they would use the money from selling copper to buy even more futures, the amount the opponent would have to prepare would increase even further.
The other nobles also agreed with Valier's proposal.
Due to this decision, the copper they had been cornering immediately began to flow into the market. When this happened, the market fell into a panic, and everyone began dump-selling the physical copper they held.
Now, as for whether that turned into a crash, it was not quite so. The Valier Trading Company, supporting the futures, naturally met the sell orders at 350 gold coins with buys. Seeing this, calm merchants purchased the falling physical copper and sold an equal number of futures. It was arbitrage, a spread-trading strategy. For example, one could purchase 1 ton of copper for 200 gold coins and sell 1 ton's worth of futures for 350 gold coins. By performing a genwatashi (T/N: physical delivery) on the settlement day—that is, handing over the physical goods they held to the party buying the futures—they could earn a profit of the 150 gold coin difference.
Normally, there is no great divergence between futures and physical goods, but because Viscount Karsh was forcibly supporting the futures this time, it was easy to perform arbitrage.
For that reason, the sellers were joined by merchants taking arbitrage strategies in addition to the Salieri Trading Company.
The Valier Trading Company, inferior in financial power, ultimately could not continue supporting the price at 350 gold coins; on the day before the final trading day, they became unable to place buy orders at 350, and the futures price crashed all at once.
Because there was no mechanism like a limit down, the futures price dropped to 10 gold coins in an instant.
As a result, the Valier Trading Company fell into a margin deficiency and was required to provide additional margin, known as a margin call.
However, the provision of the margin call was set for the day after the next business day, so they did not have to put up the margin on the final day yet.
This too was Valier's tactic. By borrowing beyond their limits and even facing a margin call, as long as they crossed the final day, they would not be subject to forced liquidation. After that, the plan was to accuse the Salieri Trading Company if they could not prepare the physical goods and collect penalty fees.
Before the final day tomorrow, Viscount Karsh held another meeting. At the start, Valier explained the situation.
"Ultimately, the open interest has swelled to 40,000 contracts. Since this is open interest for two years' worth of domestic trading volume, physical delivery of this will be impossible. We are also facing a margin call, but once the final day's trading is over, forced liquidation cannot be done within the market, so after that, it becomes a negotiation regarding the opponent's inability to deliver."
"When it comes to negotiation, we simply need to not take a single step back. We just insist that we are buying, so hand over the physical goods," Viscount Karsh said with a laugh.
By this point, it was certain that Aurora would be unable to prepare the physical goods. After that, they just had to say they would pay the money after the delivery was made. Even if they didn't truly have the cash to pay, the delivery of the goods comes first, so there would be no problem.
The nobles of the faction had also liquidated whatever they could immediately turn into cash and had borrowed from merchants other than Valier to support the futures. For their part, they intended to demand physical delivery along with Viscount Karsh, believing that by having a large number of nobles make the claim, they could suppress Aurora.
"I hear the Margrave's daughter is also coming to the exchange tomorrow. It is supposedly to ensure that the final day's trading is not interfered with."
"Does she still think we are going to pull something? How foolish. Even though our preparations are already complete. Very well, I shall go to the exchange tomorrow as well and have a look at her crying face."
Since the final trading day tomorrow involved such a massive market movement, it had been announced that Aurora would come to the exchange under the pretext of confirming that it closed peacefully. Since the mastermind of the sellers was coming, Viscount Karsh, the mastermind of the buyers, decided he wanted to go see the final day as a conclusion.
The resolution within the market would be carried over to the delivery day, but it was a ceremony marking a milestone.
The next day, just before the market opened, there was an announcement from the exchange officials to the brokers.
"Due in part to the excessive open interest in copper futures, we shall proceed with a Settlement by Compromise."
A stir arose within the hall upon hearing that announcement.
A Settlement by Compromise refers to an emergency measure where, in cases such as when the market is exposed to sudden chaos or when settlement becomes impossible due to unavoidable circumstances, a fixed price is presented to both parties to settle the contracts.
Since the open interest was equivalent to two years' worth of trading volume, they had resorted to such a measure because there was no place to store the physical goods.
Of course, those who vehemently opposed this were Valier and Viscount Karsh.
"How can I accept such a thing! A Settlement by Compromise at this stage?!"
Viscount Karsh, being a noble, approached the official without hesitation. Since the opponent was a noble, the official could not resist and remained with his collar grabbed. Then, with a face on the verge of tears, he sought help from Aurora.
"Viscount, even if you say that, there are no warehouses to store the physical goods for this much open interest, so is it not unavoidable?"
When Aurora offered a helping hand, Viscount Karsh wore a face that suggested he understood.
"In other words, this was a dirty tactic to use that as a reason to settle at the current futures price."
"My, calling it dirty is quite offensive. I was merely consulted about the lack of storage space and provided the wisdom of a Settlement by Compromise."
"Then let us recognize an alternative storage location. Delivery at a warehouse is the standard, but if it cannot all be stored, delivery at a different location is also acceptable."
"Oh, is that so? Then let us do that. However, for those who prefer the Settlement by Compromise, I can accept individual orders."
Here, Aurora designated her own castle. Then, for those who preferred the Settlement by Compromise, she accepted futures orders outside the market. For the brokers who had bought the cheapened futures aiming for a rebound, considering the trouble of taking physical delivery, it was less damaging to settle with a monetary exchange via the Settlement by Compromise. Unlike Viscount Karsh, they did not possess the courage to negotiate against Aurora.
In the end, there was no trading within the market on the final day; only over-the-counter transactions outside the market were established.
That night, Viscount Karsh held another meeting.
"It was the right choice to barge in. To think she would bring up a Settlement by Compromise. Had I not been there, she would have pushed it through by now."
Viscount Karsh was in high spirits. That was only natural, as he believed he had crushed Aurora's scheme. Immediately, the nobles of the faction began to flatter him.
"She gave up on her coercion, overwhelmed by Your Excellency's momentum."
"Once we oust that woman and operate the exchange ourselves, it will produce enormous profits. We can freely use rules like this one ourselves. Of course, it is all thanks to Your Excellency's prestige."
"I expect she will come to prostrate herself by the delivery day."
Receiving those words, Viscount Karsh became even more jubilant.
The pre-celebration continued until late that night, and they even discussed the distribution of the vested interests held by the House of Margrave Sowell.
On the day of the physical delivery two days later, Aurora, Harry, Viscount Karsh's faction, Salieri, Valier, and the exchange officials were gathered at the castle of Margrave Sowell. Steve was watching the scene from a distance in Aurora's office.
Incidentally, the open interest held by Steve and Emmanuel had been resolved through an over-the-counter transaction similar to the Settlement by Compromise. Aurora had accepted their orders. Furthermore, these profits were separate from the secret deal with Aurora, and were something the two of them could receive in full.
"Have you prepared the physical goods?"
Viscount Karsh asked Aurora sarcastically.
"Yes. The storage area is at the back of the castle."
"What?"
Because an unexpected reply came from Aurora, Viscount Karsh was startled. This was because he had expected an apology saying she could not prepare them. The other nobles were similarly surprised.
Aurora smiled brightly upon seeing their reaction.
"Now, allow me to guide you here."
At the place Aurora guided them to, there was a mountain of copper. Of course, it was what Steve had been diligently creating with magic every day.
The exchange official spoke to Aurora with a bewildered expression.
"Your Excellency, with this much volume, we cannot immediately verify the authenticity and weight."
"I won't demand the impossible. Please perform the physical delivery starting from the parts that are finished. If the people taking delivery (T/N: genbiki — the act of paying cash to receive the physical goods) are fine with that, of course."
Aurora glanced at Viscount Karsh and the others. However, everyone was frozen and did not even notice Aurora's gaze.
"Is that acceptable for the Valier Trading Company?"
Asked by the official, Valier nodded.
"Understood. I shall consult with the clients regarding the order of taking delivery."
He replied thus and sought confirmation from the frozen nobles. However, the nobles, who did not possess enough cash to take delivery, could say nothing and merely sent imploring gazes toward Viscount Karsh.
That Viscount Karsh crouched down with both hands and knees on the ground.
"Impossible, such a thing..."
He was muttering to himself, but eventually, he sprang up and lunged at the official.
"Check the authenticity properly! Even if you gathered all the copper circulating in the kingdom, it wouldn't amount to this much. There must be fakes mixed in!"
"My, is it quite alright for you to say in a public place that I have mixed in fakes?"
Aurora glared at Viscount Karsh with a sharp gaze. It was a look that would make an ordinary person shrink back, but Viscount Karsh did not flinch.
"As if such a ridiculous amount could be prepared!"
"If you say so, I don't mind asking His Majesty to conduct an investigation. His Majesty also seems angry at your methods, so I'm sure he would be willing to cooperate."
"Why would His Majesty be angry at me?"
Having no idea what Aurora was referring to, Viscount Karsh decided it was a bluff.
"His Majesty sent copper to the Archibalt Territory for research. You are stopping that in your territory, aren't you? He is angry that you are obstructing the nation's development. I even received a letter asking me to do something about it."
"What did you say——"
Viscount Karsh was speechless. This was a trap set by Steve. He had asked Cyril to send a letter to the Royal Capital saying he wanted to create and present a rare product using copper for the King. Then, having obtained the King's permission, the copper was to be sent to the Archibalt Territory. However, there was nothing on that copper to indicate a connection to the Royal Family. Therefore, the officials of Viscount Karsh's territory did not permit the copper to pass through the domain.
Then, Cyril sent another letter to the Royal Capital. Saying the copper had not arrived.
As a result of soldiers dispatched from the Royal Capital investigating the reason, it was discovered that it was being unjustly stopped in Viscount Karsh's territory, and that was reported to the King.
"I expect you'll be summoned to the Royal Capital soon to explain the circumstances, won't you?"
Aurora giggled.