London Metal Exchange faces £370m legal showdown over nickel debacle
London Metal Exchange faces a £370 million legal confrontation over canceling billions of pounds worth of nickel transactions
The London Metal Exchange was accused of rushing a decision to cancel billions of pounds worth of nickel trading as two financial firms filed a £370 million legal claim yesterday.
US-based hedge fund Elliott Associates and trading firm Jane Street are seeking damages, arguing that the LME acted unlawfully by canceling the trades on March 8 last year.
The judicial review at London’s Royal Courts of Justice focuses on a period of volatility in commodity markets following the Russian invasion of Ukraine.
Lawyers for the two firms say the LME was wrong to act quickly to wipe out trades after the nickel price doubled within hours.
Monica Carss-Frisk KC, representing Elliott, said the decision was “completely unprecedented.”
Review: US-based hedge fund Elliott Associates and trading firm Jane Street are seeking damages, arguing that the LME acted unlawfully by canceling the trades on March 8 last year
LME chief executive Matthew Chamberlain spent just 20 minutes on his mobile phone scrolling through news and watching nickel prices soar before deciding the market was disorderly, according to a court document filed by Jane Street.
The case has brought renewed attention to the 146-year-old stock exchange, the world’s largest industrial metals market and London’s last remaining bastion of open trading.
It is also facing a separate £80m claim from a group of hedge funds over the episode, which saw it freeze £3.3bn worth of trades and close the nickel market for over a week.
The exchange is under scrutiny by the Financial Conduct Authority, while the Bank of England said after an evaluation it would appoint an independent regulator for it.
The LME has said it was justified in closing markets and canceling trades.
Nickel prices rose 250 percent in just two days to a record high of more than $100,000 a ton before LME bosses intervened.
The LME argues that failing to do so would have led to £15.4bn in margin calls – as investors are asked to put in more money to cover potential losses.
That would have led to several bankruptcies and led to systemic market risks, says the LME.
However, Elliott and Jane Street argue that other options were available for the exchange.
For example, by using a lower closing price from the previous day to establish margins for trades on March 8, additional margin calls could have been limited to £450m instead of £15.4bn.
“The reality is that there were many other tools available to the LME to respond to the March 8 events,” Thomas Houlbrook, Elliott’s commodities portfolio manager, said in a statement.
Houlbrook suggested that “the LME’s own financial exposure” was the reason the exchange decided to cancel trades – something it denies.
Lawyers for the LME said: ‘The claims concern an attack on the expert, multi-factorial decision-making of a specialized agency, making complex appraisals with the utmost urgency in a unique and rapidly changing situation.’
The exchange said the lawsuit raised questions about the viability of regulated exchanges, which have a duty to maintain market order and the power to cancel transactions in exceptional situations.
It is almost inevitable that any exercise of those powers will be controversial. “This is an area ripe for opportunistic accusations and the application of hindsight.”