HKEX-owned LME’s handling of 2022 nickel chaos faces scrutiny as British financial watchdog opens enforcement inquiry
- Financial Conduct Authority to investigate London Metal Exchange’s conduct, controls after suspension of nickel trading last year
- Bank of England to appoint independent monitor for LME’s clearing house
Separately, the Bank of England said that it planned to appoint an independent monitor to assess and report on actions by LME Clear, the bourse’s clearing house, to address shortcomings in its governance and risk management.
“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,” Matthew Chamberlain, the LME CEO, said in a statement.
The LME is expected to unveil an implementation plan in response to the independent review’s recommendations by the end of the first quarter, including “initiatives that are already under way” to strengthen its business and markets, the bourse said.
Later this month, the bourse is expected to resume trading of nickel during business hours in Asia after a pause of more than a year, which the LME hopes will help with liquidity issues in the market. Trading will be available beginning at 1 am GMT/9 am HKT.
In early March of last year, nickel prices, alongside other commodities, rose dramatically after Russia’s invasion of Ukraine stoked concerns about supply shortages. Prices surged by as much as 250 per cent in just over 24 hours, squeezing dozens of short-sellers, including the world’s largest stainless steel producer, Tsingshan Holding Group of China.
The bourse has said the nickel market had become “disorderly” in the early hours of March 8, 2022, and the decision was made to cancel trades 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 way”.
However, some traders criticised the bourse’s decision, saying the exchange favoured some investors over others by cancelling completed trades that day.
“Investor confidence in the LME was badly shaken by the crisis and must be rebuilt,” said Jennifer Han, head of global regulatory affairs at the MFA. “Alternative asset managers require sound and predictable markets to deliver reliable returns for institutional investors such as pensions, especially during times of market volatility.”
LME has already introduced a series of measures to try to avoid similar situations in the future, including upper and lower daily price limits for contracts that require metals to be physically delivered when a futures contract expires.
Last summer, the bourse began requiring its members to report their OTC positions on a weekly basis for these metals, including contracts for aluminium, copper, nickel, tin and zinc.