Elliott Associates sues London Metal Exchange for cancelled trades

LONDON (Reuters) -A lawsuit brought by Elliott Associates and Jane Street Global Trading against the London Metal Exchange (LME) for cancelling nickel trades during chaotic trading in March 2022 will be heard in a London court on June 20-22.

On March 8, 2022 nickel prices more than doubled in a matter of hours to a record above $100,000 a tonne, prompting the exchange to suspend trading for the first time since 1988 and cancel all nickel trades on that day.

LAWSUIT AGAINST LME

U.S. hedge fund Elliott Associates and Jane Street Global Trading are invoking the Human Rights Act to claim a combined $472 million from the London Metal Exchange in a judicial review of its decision to cancel the nickel trades.

The two groups allege the LME acted unlawfully, breached its published policies, was disproportionate, favoured some market participants over others, and violated their rights under the European Convention of Human Rights to the "peaceful enjoyment" of possessions, documents filed with a London court showed.

The case will test LME rules, which Elliott alleges lack clarity, guidance and precedence about when the exchange can use its cancellation powers.

The world's largest metals marketplace has argued it had both the power and duty to close the market and cancel trades because $19.7 billion of margin calls would otherwise have led to the bankruptcy of multiple clearing members and created systemic market risk.

The exchange says that unprecedented market conditions caused a "disorderly" market and that it acted fairly to protect stability and integrity.

REGULATORY PROBES

The LME is regulated by Britain's Financial Conduct Authority (FCA), and its clearing house, LME Clear, by the Bank of England (BoE).

The FCA in March launched its first ever investigation of a UK exchange for possible misconduct after the LME's decision to halt trading.

The investigation will look into the conduct and systems and controls that the LME had in place between Jan. 1 and the suspension of trade on March 8, the FCA said. The BoE said the suspension had pointed to several shortcomings.

"In response, LME Clear will need to strengthen its governance arrangements, increase independence in management and governance at the CCP, and improve on its wider risk management," Britain's central bank said.

NICKEL VOLUMES

Nickel volumes crashed in the aftermath of the trading fiasco, but since then lower margin calls and the restart of Asian hours nickel trading have helped.

Average daily volumes for the benchmark nickel contract on the exchange's electronic system Select have risen to 18,190 tonnes, the highest since March 2022.

Overall average daily volumes for nickel futures and options bottomed out in October at 196,868 tons and had ticked up to 217,920 in May. This compares with 241,062 tons in May 2022 and 368,928 in May 2021.

(Reporting by Pratima Desai and Eric Onstad; Editing by Jan Harvey)