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Traders, brokers and clerks on the trading floor of the open outcry pit at the London Metal Exchange Ltd. (LME) in London on Monday, February 28, 2022. Photo: Bloomberg
BusinessBanking & Finance

Hedge funds sue HKEX’s London Metal Exchange for US$96 million over 2022 nickel trading fiasco

  • The new lawsuit in London follows earlier demand from investors including Paul Singer’s Elliott Associates for damages tied to cancelled nickel contracts
  • The LME and its clearing house, both owned by HKEX, view the claims as without merit, saying the decision was made in the interests of the market
LME
Eric Ng
Eric Ng
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The London Metal Exchange (LME), a unit of Hong Kong Exchanges and Clearing Limited (HKEX), has been hit by another lawsuit by global hedge funds and commodity traders, a year after a nickel squeeze sparked wild prices and prompted the bourse to cancel trading contracts.

AQR Capital Management, DRW Commodities, Flow Traders, Capstone Investment Advisors and Winton Capital Management are seeking about £80 million (US$96.2 million) in damages from LME and LME Clear, according to a stock exchange filing on late Monday.

The lawsuit was filed in the English Commercial Court on Monday, according to HKEX. Both defendants are wholly-owned units of the Hong Kong stock exchange operator.

“The claim seeks damages for losses alleged to have been suffered as a result of the LME’s decision to cancel the claimants’ alleged trades in nickel contracts” executed on or after March 8, 2022, HKEX said. “The LME and LME Clear management are of the view that the claim is without merit.”

LME’s nickel rout: does the 145-year metals exchange have a future?

The new claim did not raise any new issues from existing cases against the LME and LME Clear announced in June last year, said the HKEX, which bought the LME in a HK$16.6 billion takeover in 2012. As such, the parties have agreed to a stay of claim pending the final determination of a judicial review of its decision to halt nickel trading and invalidate affected contracts, it added.
The LME and LME Clear were sued in June by Elliott Associates, Elliott International and Jane Street Global Trading, who sought up to £471 million in damages. The LME’s management had earlier said the claims were without merit.
The latest lawsuit came after the UK’s Financial Conduct Authority announced on Friday that it would initiate an inquiry into some of the London Metal Exchange’s conduct, as well as its systems and controls, between January 1 and March 8 last year. The decision followed a review of events preceding the trading halt and trades cancellation.

Nickel, alongside other commodities, surged dramatically days after Russia’s invasion of Ukraine in late February amid concerns about supply shortages. Prices jumped by as much as 250 per cent in over 24 hours, squeezing dozens of short-sellers including the world’s largest stainless steel producer, Tsingshan Holding of China.

The had LME determined that trading activity up to and including the close of trading on March 7 last year had been “orderly”, the HKEX had said then. The LME suspended trading, and cancelled all nickel contracts executed on or after 12am UK time on March 8, citing “disorderly” trading. Trading resumed on March 16.

“Cancellations were made retrospectively 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,” HKEX said in its Monday filing. “It should be stressed that the LME always acted in the interests of the market as a whole.”

HKEX’s shares fell 0.7 per cent to close atHK$337.40 in Hong Kong.

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