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Britain's city watchdog and the Bank of England (BoE) launched a probe into the suspension of nickel trading by the London Metal Exchange (LME) in March as volatile trading recedes.
The Financial Conduct Authority (FCA) said it plans to "review the LME’s approach to managing the suspension and resumption" of the nickel market.
The Prudential Regulation Authority (PRA) part of the BoE will review the LME’s clearing house during the period "to determine whether any lessons might be learned in relation to its governance and risk management".
Both regulators will also engage with traders who held significant positions in the market to assess the effectiveness of their risk management and governance during the period.
"Events around the suspension and resumption of trading have underlined questions raised in a recent LME Discussion Paper on Market Structure, particularly the role of transparency in the LME and related markets," the regulators said in a joint statement on Monday.
"The FCA has been in discussion with the LME on its proposals for some time and expects the LME to consider carefully how recent events should shape its future approach on market structure."
A third party will be appointed by the FCA and PRA to review the situation once the market settled down. Watchdogs will then decide "whether further action should be taken and will announce next steps in due course", which could lead to potential fines or measures if investigators find the LME guilty.
Regulators said the LME had already “agreed the benefits of appointing additional independent directors to strengthen its governance”. The operator is now looking at how best to do this.
The exchange said it welcomed the review. Separately, it announced it would appoint an independent party to conduct its own probe into events in the nickel market.
The LME was forced to freeze nickel, a key battery metal produced by Russia, contracts and cancel a day's worth of trading after the invasion of Ukraine resulted in "disorderly conducts".
In March, the price of nickel spiked by more than 50% in a matter of hours to hit $100,000 per tonne before trading of the commodity was suspended on 8 March. The metal, which is used in stainless steel and lithium-ion batteries, ended last year at $20,757 a tonne.
The 145-year-old exchange, which is owned by Hong Kong Exchanges and Clearing (0388.HK), said the price spike had pushed several smaller members of the exchange to the brink of failure. However, its controversial decision to erase a day's worth of trading provoked anger among other members.
Nickel trading resumed on the LME on Wednesday 16 March.
Nickel had surged 250% in the lead up to the suspension last month, after Chinese metals tycoon Xiang Guangda's bet that prices would fall contributed to an uncontrollable market.
The LME, the world's oldest and largest market for industrial metals, introduced a 15% upper and lower daily price limit for all its physically delivered metals after the chaotic trading period.
Three month Nickel price was trading up 3.5% at $33,219 per tonne in afternoon trade in London on Monday.