The London Metal Exchange has emerged victorious in a legal battle against traders who sued over its decision to cancel billions of dollars worth of nickel trades. The High Court in England dismissed claims that the exchange acted unlawfully during a crisis in the nickel market last year. Hedge fund Elliott Management and market maker Jane Street Capital accused the LME of making hasty and unlawful decisions when prices skyrocketed in the nickel market.
The case against the 146-year-old City of London institution was closely watched in global finance as a legal test of exchanges’ powers to restore orderly trading in stressed markets. The LME cancelled about $12 billion worth of trades, citing a disorderly market as the reason. This decision resulted in wiping out both outsized gains and losses among its members, sparking uproar among several traders and leading to a wave of litigation.
However, in a ruling handed down by the High Court, Elliott and Jane Street’s claims were dismissed, with the judges stating that the challenges failed on all grounds. Elliott has expressed its intention to appeal, citing concerns about the precedents that the ruling establishes. The ruling raises fundamental questions about trade certainty and effective checks and balances on UK exchanges, according to the Florida-based hedge fund.
The nickel price surge in March 2022 was triggered by a large bet on falling prices made by Chinese steel producer Tsingshan, coinciding with market concerns about sanctions against Russia, a major exporter of the metal. The LME argued that it had to take action to prevent a broader market collapse, fearing that many users would default on margin calls and face severe financial difficulties. The chief executive of the LME emphasized the systemic risk posed by such dramatic moves in the market.
The claimants’ legal case was unusual as they sought a judicial review against a private sector authority, challenging the decision making process of the LME. However, the court highlighted that the LME’s trading rules allowed it to cancel, vary, or correct trades if deemed appropriate. The judges also noted the urgency of the situation and affirmed the LME’s discretion in deciding consultations and actions.
In response to the ruling, the LME’s chief executive expressed satisfaction with the court’s decision and emphasized the exchange’s focus on strengthening and enhancing its markets following the crisis. The CEO of HKEX, the Hong Kong-based company that owns the London exchange, praised the LME for acting with integrity and prioritizing the interests of the market as a whole throughout the ordeal.
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