LME in court again, faces US$15.3 million suit from trading firm Jane Street Global for cancelling nickel futures trades

The quantitative trading firm claims that LME’s decision to cancel its trades was unlawful and constituted a breach of its human rights
Jane Street Global suit follows a US$456 million lawsuit filed by affiliates of American hedge fund Elliot Management on June 1

LME

Georgina Lee

Published: 12:31pm, 7 Jun 2022

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The London Metal Exchange (LME) is being sued for a second time in less than a week, as legal challenges mount over its decision to suspend and cancel nickel futures trades in March.

Jane Street Global Trading, a quantitative trading firm, filed a judicial review against LME on Monday and is seeking US$15.3 million from the exchange. Both LME and its clearing house have been named as defendants. Jane Street Global’s suit follows a US$456 million lawsuit filed by affiliates of American hedge fund Elliot Management on June 1, both in the UK high court.

It claims that LME’s decision to cancel its trades in nickel contracts on or after the midnight of March 8 was unlawful, and constituted a breach of its human rights. A similar claim was made by Elliot Management’s affiliates.

“The LME management is of the view that the claim is without merit and the LME will contest it vigorously,” Hong Kong Exchanges and Clearing (HKEX), the London bourse’s parent firm, said in an exchange filing in Hong Kong on Tuesday. “It should be stressed that the LME always acted in the interests of the market.”

The situation at LME is a ‘great opportunity to implement certain market reforms’, says Nicolas Aguzin, the CEO of parent firm HKEX. Photo: Bloomberg

Jane Street Global has offices in London, Hong Kong, New York and Amsterdam, according to its website. Quant trading firms rely on quantitative analysis and mathematical computations to identify trading opportunities across several markets.

The metals exchange was raked over the coals by some traders for its decision to cancel transactions after it halted nickel trading amid significant price volatility in March. A chaotic restart of trading a week later also damaged its reputation as the go-to venue for metals trading.

A 250 per cent price surge in just over 24 hours imperilled dozens of short sellers, the biggest being the world’s largest stainless steel producer Tsingshan Holding Group. Its paper loss was estimated at US$3 billion by Bloomberg.

LME said in the HKEX announcement on Tuesday that it had cancelled all trades executed after midnight on March 8 retrospectively in order “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”. Trading subsequently resumed on March 16 across all LME execution venues.

The lawsuit follows a recent visit to London by Nicolas Aguzin, HKEX’s CEO, who met LME executives to celebrate the 10th anniversary of its acquisition this month.

In an interview with the South China Morning Post in May, the former JPMorgan banker said he planned to meet LME staff to discuss the events that led up to the suspension and cancellation of nickel futures trades, and try to understand how the market could be improved.

“I actually see the situation at LME as a great opportunity to implement certain market reforms. While this is definitely a big challenge, it is [also] a big opportunity,” Aguzin said.

UK financial regulators are conducting their own review of the exchange’s handling of the situation, in addition to an independent inquiry announced by LME.

The International Monetary Fund also called for LME to strengthen its governance mechanisms to avoid potential conflicts of interest. Traders said the cancelling of trades favoured some investors over others.

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