UK regulator launches enforcement probe into LME nickel trading halt

3rd March 2023 By: Reuters

British financial regulators took weighty action on Friday, including a probe into possible misconduct, over the decision last year by the London Metal Exchange (LME) to halt nickel trading and cancel billion of dollars of trades.

The world's largest and oldest metals market annulled all nickel trades in March last year after chaotic price action and suspended the market for the first time since 1988.

The suspension on March 8 came after prices doubled to more than $100 000/t in a matter of hours in a surge sources blamed on short covering by one of the world's top producers.

The move spurred legal action, while the nickel contract remains broken with volumes sliding, leaving the industry without an effective global reference price.

In a statement, the Financial Conduct Authority (FCA) said it had launched an "enforcement investigation" into the LME conduct, systems and controls that the LME had in place between January 1 and March 8 last year.

The watchdog said it would not make any further comment about the probe. Its website says: "We will start an investigation where we have reason to believe serious misconduct may have taken place."

In a statement the LME said that it had taken active steps to enhance nickel market liquidity and transparency.

"The LME will cooperate fully with this process and will continue to take the appropriate steps to ensure the long-term health, efficiency and resilience of its market," the LME added.

Both the FCA and the Bank of England began a review into the trading halt last April.

On Friday the Bank of England separately said its reviews had pointed to several shortcomings at LME clearing house LME Clear, adding it would name an independent monitor to assess and report on its remedial actions.

In its statement, the FCA said the LME had implemented changes to its control framework and had committed to a wider package of market reform, adding it was encouraged by its focus on transparency.

Last June the LME appointed management consultants Oliver Wyman to carry out a review of the nickel trading debacle last June. The exchange has said it would communicate an implementation plan for the review's recommendations by the end of March.

The LME faces lawsuits from US hedge fund Elliott Associates and Jane Street Global Trading, which are suing the exchange for $456-million and $15.3-million, respectively, for the cancelled nickel trades.