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June 7, 2022

US traders sue London Metals Exchange over nickel market disruption

Changes and pauses to nickel trades on the London Metals Exchange in March have attracted lawsuits from traders, alleging manipulation.

By Matt Farmer

US metals traders have filed lawsuits against the London Metals Exchange (LME) over its handling of the nickel market.

The owners of the LME, Hong Kong Exchanges and Clearing, publicly acknowledged Elliot Management’s lawsuit on Monday. The investment firm filed its lawsuit on 1 June, seeking $456m in damages. On Tuesday, Jane Street also filed a lawsuit, seeking $15.3m in damages.

Elliott alleges that the market “acted unlawfully and exceeded its powers” when cancelling trades made before the suspension of the market. A statement from Jane Street called the suspension “arbitrary”, saying it “undermines the integrity of the markets”.

In response, a Hong Kong Exchanges spokesperson said that LME “sought to act in the interests of the market as a whole” at all times. They said that the exchange has “an important role to play in ensuring the market is fair and orderly”.

On 8 March, the London Metals Exchange paused trading of nickel after prices rose more than 250% in one day. Russia’s invasion of Ukraine caused speculation that prices would rise, which tied into expected purchases by China’s Tsingshan Holdings. As prices started to spike on 8 March, the nickel mining company held a massive short position. This would allow the company to profit if prices fell, a position based on having sold imaginary units of nickel to buy back later.

As prices rose, traders expected the company to leave its short position by buying the contracts back. This caused prices to spike further, leading the market into an upward spiral.

Seeing this, the LME suspended trading and cancelled inflated trades registered before the suspension. This is the move that has attracted the lawsuits, as well as criticism from hedge fund managers. Critics accuse LME of working to protect Tsingshan from the losses it would have sustained.

In April, the UK’s Financial Conduct Authority announced it would investigate the actions of the market in March. The authority hopes to “determine what lessons might be learned” from the incident.

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