Hong Kong Exchanges and Clearing-owned London Metals Exchange (LME) is being sued by two U.S. firms for a total of nearly half a billion dollars over its controversial decision to cancel nickel trades on March 8 due to volatility that saw prices double to more than $100,000 a tonne within hours. Nickel trading did not resume on LME for more than week after it was halted.
Nickel is used to produce stainless steel and in rechargeable batteries. The surge in prices was caused by uncertainty over the metal’s availability, given fears that companies such as the Russia-headquartered Nornickel – which is world’s largest supplier of the metal – could face sanctions as a result of the military conflict in Ukraine.
Market maker Jane Street Global Trading filed a judicial review claim in the English High Court on Monday (June 6) seeking about $15.3 million, just days after Elliott Associates, the world’s largest activist hedge fund, filed a suit for $456 million.
In a statement Tuesday (June 7), Jane Street said it had taken action to recoup its losses caused by the LME’s “illegal actions” and to “strengthen the exchange and restore the market’s trust in it.”
“The LME’s arbitrary decision to cancel nickel trades during a period of heightened volatility severely undermines the integrity of the markets and sets a dangerous precedent that calls future contracts into question.”
Elliott Associates has said that when the LME cancelled Nickel trades on 8th March 2022 it acted “unlawfully in that it exceeded its powers when it cancelled those trades, or that it exercised the powers that it did have unreasonably and irrationally in particular by taking into account irrelevant factors (including its own financial position) and failing to take into account relevant factors.”
In response, HKEX said the decision to suspend trading was taken because the “nickel market had become disorderly.” “Cancellations were made retrospectively to take the market back to the last point in time at which the LME could be confident that the market was operating in an orderly manner. It should be stressed that the LME always acted in the interests of the market as a whole” HKEX said in a statement on Monday.
"The suspension and cancellation of trades served as a bailout for China’s Tsingshan Holding Group Co., which held massive short positions on nickel and faced billions of dollars of losses. But traders with long positions who stood to make substantial profits were unhappy with the exchange’s decision and criticized it as detrimental to their interests" Caixin Global wrote on Tuesday.
The suits add pressure on the Hong Kong exchange, which is already suffering under a drought of initial public offerings. The exchange is also facing a review by U.K. regulators and is struggling to restore trust and volumes in its nickel market.