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 spike in price of the metal.
Elliott filed the suit through two subsidiaries 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”.
The 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 days’ 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 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.
The LME’s decision to erase a day of trading because of the price hike — which it claims pushed several smaller members of the exchange to the brink of failure — has 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”.
But the LME denied that parent company HKEX had 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 restore its reputation. It has also launched a review into the nickel market chaos.
The LME has said that one reason it did not react earlier to the nickel price squeeze was that it didn’t know just how much business was being done over-the-counter via derivatives.
Chamberlain is now 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 in March said it would nearly 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.