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London Metal Exchange hit by two US lawsuits over nickel trade chaos

Traders operate in the Ring, the open trading floor of the new London Metal Exchange (LME) in central London.

matt clinch | CNBC

LONDON — A second US firm has sued the London Metal Exchange for $15.3 million over canceled nickel trades in March.

Jane Street Global Trading filed an application for judicial review in the English High Court on Monday, a memo from LME owner Hong Kong Exchanges and Clearing (HKEX) confirmed.

The U.S. market maker’s filing comes just days after hedge fund Elliott Associates filed a $456 million lawsuit over the same chaotic March morning.

The LME suspended trading activity and canceled nickel trading on March 8 due to a spike in volatility, which saw nickel prices double to a record high of $100,000 a tonne in the space of a few hours.

“Exceeded his powers”

A spokesperson for Elliott confirmed that it had initiated judicial review proceedings against the LME.

“Elliott considers that when the LME canceled the nickel transactions on March 8, 2022, it acted unlawfully in that it exceeded its powers when it canceled those transactions, or that it exercised the powers with which it disposed of in an unreasonable and irrational manner including taking into account irrelevant factors (including his own financial circumstances) and failing to take into account relevant factors,” the spokesperson added.

In a statement on Tuesday, Jane Street said it had taken steps to recoup its losses caused by the LME’s “unlawful actions” and to “strengthen the stock market and restore market confidence in it.”

“The LME’s arbitrary decision to call off nickel trading during a time of heightened volatility seriously undermines the integrity of the markets and sets a dangerous precedent that calls future contracts into question.”

The wild trade in the nickel market in early March came about two weeks after Russia invaded Ukraine, sparking supply fears that sent commodity prices skyrocketing across the board. areas.

Extreme price movements during overnight Asian trading hours sent the market into a frenzy at dawn in London. Russia is the world’s third-largest producer of nickel, a key ingredient in stainless steel and a major component of lithium-ion batteries.

However, in the weeks following the attack, banks began to reduce their exposure to Russian commodities and shipping giants swerved into major ports across the country.

Shortly after nickel prices surged above $100,000 a ton, Saxo Bank’s head of commodities strategy Ole Hansen told CNBC it was a “very dangerous market. which was “not driven by supply and demand”, but rather by “fear”.

“Without merit”

An LME spokesperson said in a statement on Tuesday that the exchange believed the nickel market in the early hours of March 8 had “become disorderly” and had therefore taken the decision to suspend trading in nickel contracts from 8:15 a.m. UK time and to cancel trades executed after 00:00 UK time.

The LME said the aim was to “bring the market back to the last moment when the LME could be sure the market was operating in an orderly fashion.”

“At all times, the LME and LME Clear have sought to act in the interests of the market as a whole. The LME therefore considers the grounds of complaint of Elliott and Jane Street to be without merit, and the LME will vigorously defend any judicial review proceedings,” the spokesperson added.

Sarah Taylor, a partner in the global commodities group at international law firm Holman Fenwick Willan, told CNBC on Tuesday that the LME has a responsibility to maintain an orderly market, so it would be “difficult to argue that its decision to suspend exchanges was inappropriate”. given the unprecedented turbulence in nickel prices at the time.

“But the position with reversal of trades may not be that simple, and when a party suffers a very large loss, it’s only natural that they look at their legal options,” Taylor added.

“The Court may need to consider not only the rationale for the LME’s decision to void the transactions, but also the consequences.”

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