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London Metal Exchange legal battle intensifies after nickel fiasco

It’s not often that the London Metal Exchange gives anyone a pulse outside of The Ring, which is not a Wagnerian opera cycle but Europe’s last open-outcry trading room.

Although it hosts trillions of pounds of trade each year, the oldest and largest industrial metals center in the world was considered something of a backwater in the Square Mile.

But in the early hours of March 8 this year, the metals market experienced some serious Sturm und Drang.

Ringside seats: The London Metal Exchange is Europe’s latest ‘open outcry’ floor

In what has become known as the nickel trade fiasco, the LME, which is owned by Hong Kong Exchanges and Clearing (HKEX), canceled billions of pounds of business after prices soared more than 50 % in a few hours.

This potentially saved China’s largest steel company, Tsingshan Holding Group. But, in the process, he enraged the world’s most feared hedge fund, Elliott Management, and entangled investment banking giant JPMorgan.

The scandal sparked almost £400million in legal action against the LME from Elliott Management and trading firm Jane Street. Both seek judicial review to determine whether the LME’s actions were legal.

The Mail on Sunday understands there could be more to come from other aggrieved hedge funds and traders. Court documents and sources familiar with the matter revealed the seriousness of the claims facing the LME, which has been accused of withholding private conversations around its controversial suspension.

Questions are also increasingly being asked about JPMorgan’s role, the MoS understands. A series of investigations have already been launched by groups such as the Financial Conduct Authority and the Bank of England to uncover the truth behind the tragedy.

The backdrop for the chaos was a spike in nickel prices. A spike came when Tsingshan had to buy contracts to undo huge short positions.

Surge: A rapid increase in the price of nickel in March 2022 sparked a legal battle involving the London Metal Exchange

Surge: A rapid increase in the price of nickel in March 2022 sparked a legal battle involving the London Metal Exchange

Chinese buying, along with supply chain pressures caused by Russia’s war in Ukraine, sent the price of nickel up 250% in just two days to over £83,000 a tonne.

The unprecedented price spike generated huge profits for hedge funds and firms in the city, including Elliott, while mammoth margin calls loomed for those on the losing side, like Tsingshan. Or so it seemed until the situation turned around.

At 8 a.m., the LME began suspending trading. However, soon after, he decided to cancel all transactions. If the judicial review applications go ahead, they could attract JPMorgan. The bank was described by Jane Street as “the only relevant broker for the transactions at issue in these proceedings”.

City sources say the short positions could have led to the collapse of Tsingshan, which would have hit JPMorgan hard. Tsingshan was a client of JPMorgan and held loans with the Wall Street lender.

A source familiar with the matter added: “JPMorgan was named from the outset as the primary dealer-dealer involved in this matter.” His interest would have been aligned with the cancellations.

Critics say that the cancellation of transactions benefited the bank. But a source close to JPMorgan said it had no influence on the LME’s decision. Jane Street’s legal claim accepts that JPMorgan had to comply with the LME’s rescission order.

Earnings from the start of this year showed JPMorgan had made a provision of £100million to deal with potential losses from the debacle.

A full High Court hearing has yet to take place between LME, Elliott or Jane Street as leave for judicial review has not yet been granted. The pre-trial fights led to heavy criticism of the British exchange and its alleged withholding of material.

Documents show that the LME was accused of failing to provide “a single document by way of disclosure or to answer a number of important questions put to it”.

The London Metal Exchange, based in Finsbury Square, is the world's oldest and largest hub for industrial metals

The London Metal Exchange, based in Finsbury Square, is the world’s oldest and largest hub for industrial metals

One source said the big unknown was what the decision-making process and communications were within the LME, and between it and other third parties.

The LME, for its part, claims to have provided all the information to which the applicants are entitled, and strongly denies any lack of candor.

It is understood that New York’s AQR Capital is among a series of other hedge funds evaluating possible legal action for the suspension.

A city attorney said, “They’re waiting in the wings to see if the judicial review will spit out any useful factual information.”

Cliff Asness, co-founder of AQR, took to Twitter in June to condemn JPMorgan, the LME and its chief executive, Matthew Chamberlain.

He said: “Good to see that JPMorgan and the Big Shot got away with all of this with only scratches.” Add to LME’s Matty Chamberlain the renewal of his work and it’s heartwarming to see good things happen to good people.

The LME said it was facing “exceptional market conditions that pose systemic risk to the market” on March 8, adding that the trades had been canceled “fairly” and in the “best interests of the market as a whole.” “.

The spokesperson continued: “The LME therefore continues to find that Elliott’s and Jane Street’s grounds of complaint are without merit and will vigorously defend any judicial review proceedings.”

Elliott, JPMorgan and Jane Street declined to comment.

The World Trade Center started life as a cafe

The London Metal Exchange is one of the last remaining auction markets in the world, with origins dating back to a city cafe in 1877.

At that time, merchants would draw a circle on the sawdust floor before starting trade.

It is now a global hub that sets daily benchmark prices for important industrial metals such as copper and zinc from its famous red sofas.

Before the pandemic, the LME had only been forced to close once – during World War II.

He faced a huge backlash when he offered to move online only after Covid, with traders demanding to continue the centuries-old tradition of barking ‘buy’ and ‘sell’ orders at each other.

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