LME lacked senior staff monitoring trading as nickel prices spiked: Jane Street

HKEX-owned bourse made ‘irrational’ decision to cancel trades amid nickel market chaos on March 8, 2022, Jane Street lawyer said
LME CEO Matthew Chamberlain determined market was ‘disorderly’ soon after he woke up at 05:30 GMT that morning

Banking & finance

Chad Brayin London

Published: 6:00am, 22 Jun 2023

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The London Metal Exchange (LME) had no senior staff on duty monitoring trading in the early morning hours as nickel prices spiked last year before it decided to cancel billions of dollars of trades, a lawyer for one of two firms suing the bourse has argued.

US hedge fund Elliott Associates and Jane Street Global Trading, which describes itself as a market maker, have sued the Hong Kong Exchanges and Clearing (HKEX)-owned bourse in London’s high court, claiming the exchange made an “irrational” decision to cancel trades on March 8, 2022, when it had other options and unfairly advantaged some traders over others.

No one was monitoring the market as prices spiked before 5am GMT, with members of the LME’s trading operations team focused instead on whether bourse-implemented “price bands” were prohibiting trades from being executed, said James Segan, a lawyer for Jane Street, on Thursday.

“It was a breach of the [LME’s] obligations to the market,” Segan said.

LME’s nickel rout: does the 145-year metals exchange have a future?

The three-day trial comes just over 15 months after the nickel market descended into chaos in March of last year as the metal’s price soared more than 270 per cent over a three-day period following Russia’s invasion of Ukraine.

Jane Street and Elliott are seeking a combined US$472 million in damages in the matter.

The rapid price movement squeezed dozens of short-sellers, including the world’s largest stainless steel producer, Tsingshan Holding Group of China.

Segan argued on Tuesday that the 146-year-old bourse’s decision to cancel trades provided a “multibillion-dollar bailout” to Tsingshan.

London Metal Exchange CEO Matthew Chamberlain speaks during the LME Asia Metals seminar in Hong Kong in May. Photo: Bloomberg

Jane Street and Elliott have said the LME had the option to set the margin price at the March 7, 2022, closing price, which would have resulted in about US$577 million in margin calls, rather than the US$19.7 billion it was facing as prices spiked that morning.

The LME has said that it fulfilled its regulatory obligations to ensure there was an orderly market for nickel trading and its actions averted “significant and systemic damage” to the nickel market. The bourse has argued there is no reason for two judges overseeing the case to set aside its decision making.

“The LME is not meant to take a spectator role,” Jonathan Crow, a lawyer for the LME told the court on Wednesday afternoon. The bourse is obliged to intervene in “moments of disorder”, he said.

Since last year’s nickel chaos, the LME has struggled to rebuild its reputation and is facing an enforcement inquiry from its chief regulator in Britain.

The price bands, which the LME said act as a control mechanism for “fat finger” errors or rogue algorithmic trading, were suspended that morning after several attempts to adjust them to keep pace with the rapid price increases proved ineffective.

Jane Street and Elliott have argued the suspension of the price bands allowed prices to rise more rapidly.

Can HKEX-owned LME rebuild its reputation a year after nickel chaos?

LME CEO Matthew Chamberlain determined the market was acting “disorderly” soon after he arose at 05:30 GMT that morning, unaware at the time that the price bands had been suspended.

The market disorder would have occurred and would have been “clearly apparent” to Chamberlain, even if the price bands had remained in place, the LME has argued.

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