LME hit by $450mn lawsuit from Elliott Management over nickel market chaos

US hedge fund Elliott Management is suing the London Metal Exchange for more than $456mn over its decision to cancel nickel trades in March after an unprecedented surge in the price of the metal.

Elliott filed the suit through two vehicles against the LME and LME Clear, the exchange’s clearing house, on June 1 in England’s High Court of Justice, said LME’s owner Hong Kong Exchanges and Clearing on Monday.

The suit by the Florida-based group, which was founded by billionaire Paul Singer, alleged that the cancellation of nickel contract trades on March 8 was “unlawful on public law grounds and/or constituted a violation of the claimants’ human rights”.

LME will contest the claim “vigorously” and views it as “without merit”, HKEX said.

Elliott’s suit relates to the 145-year-old exchange’s decision to cancel a day’s worth of nickel trades and suspend trading for eight days in March.

It will add to the exchange’s woes as it battles to restore its reputation as the world’s leading venue for trading industrial metals including nickel, used to produce stainless steel and batteries for electric vehicles.

The decision to suspend trading followed a 250 per cent surge in the price of nickel to a record $100,000 a tonne that was triggered by a short squeeze as banks and brokers rushed to close part of a large position amassed by Xiang Guangda, the billionaire founder of China’s leading stainless steel producer Tsingshan Holding Group.

Nickel is currently trading at more than $28,000 a tonne.

The LME’s decision to erase a day of trading because of the price surge — which it claimed pushed several smaller members of the exchange to the brink of failure — provoked uproar among some traders who saw their profits wiped out by the move.

AQR Capital Management, one of the world’s largest hedge funds, was exploring legal options in its dispute, people familiar with the matter said in March. The fund’s founder accused the LME of “reversing trades to save your favoured cronies and robbing your non-crony customers”.

LME has denied that parent company HKEX influenced its decision.

The move also prompted UK financial regulators in April to launch a review into the “disorderly market” in nickel contracts during the period.

LME chief executive Matthew Chamberlain backtracked on a decision to leave for digital assets start-up Komainu in April as the exchange struggled to rebuild its reputation. It has also launched a review into the nickel market chaos.

LME has said that one reason it did not react earlier to the nickel price squeeze was that it did not know just how much business was being done over-the-counter via derivatives.

Chamberlain is trying to push through a plan for more regular reporting of these positions in all of the LME’s physically delivered metals. However, members have resisted similar moves for greater transparency in the past.

The exchange also said in March that it would almost double the size of the fund that protects the market as a whole against a sudden collapse of one of its members.

Elliott did not immediately respond to a request for comment.