London Metal Exchange questioned over suspension of nickel trade

The London Metal Exchange probed the suspension of nickel trading last month as the debacle raises questions about its transparency

  • The LME halted nickel trading from March 8-16 after prices doubled in hours
  • FCA and Bank of England launch review of suspension treatment
  • LME governance under scrutiny; exchange could face ‘further measures’

The London Metal Exchange is under investigation into the suspension of nickel trading last month and could be subject to “further action”, UK financial regulators have said.

The 145-year-old exchange halted nickel trading on March 8 after Russia’s invasion of Ukraine caused volatility, with the price of nickel doubling to $100,000 a ton in just a few minutes. hours only.

Chaos erupted again when nickel trading resumed on March 16, as it was almost immediately halted after the price crashed amid a wave technical glitches.

The London Metal Exchange had to halt nickel trading after prices more than doubled in hours last month

Today the Financial Conduct Authority said it would launch a review of the LME’s response to massive price swings.determine what lessons could be learned regarding the LME’s governance and market oversight arrangements”.

The Bank of England will undertake a similar review of the operation of LME Clear, the exchange’s clearinghouse, “to determine whether any lessons could be learned in relation to its governance and risk management.”

The Bank’s Prudential Regulatory Authority (PRA), which oversees banks and institutions that trade on the LME, and the FCA will “engage further” with companies that have held important positions during the market chaos.

In a joint statement, the organizations said they would appoint experts to lead the review and “will review these reports to determine if further action needs to be taken.”

In the meantime, they said the LME should remain vigilant as commodity prices remain under pressure due to the dispute.

Other commodities – from palladium and platinum to wheat, oil and gas – have also soared as war in Ukraine threatens commodity supplies.

Nickel is a key material used to make stainless steel and electric car batteries, and soaring prices are likely to make these vehicles more expensive.

“Events around the suspension and resumption of trading have underscored issues raised in a recent LME discussion paper on market structure, in particular the role of transparency in the LME and related markets,” said regulators.

“The FCA has been in discussion with the LME on its proposals for some time and expects the LME to carefully consider how recent events should shape its future approach to market structure.”

In a statement, LME Group said it welcomed the announcement from regulators.

“In addition, the LME Group will commission an independent review of the broader events in the nickel market leading to the suspension to identify any steps that could be taken to minimize the risk of a disorderly market in the future,” he added.

It comes like the LME also faces the threat of a lawsuit from angry hedge funds, including New York’s AQR Capital Management, who lost when he rolled back trades as the price of nickel soared.