The London Metal Exchange (LME) has won a legal battle against ruthless investors over a meltdown in the nickel market.
It faced a £372million lawsuit involving hedge fund Elliott Management as well as smaller trading firm Jane Street after it cancelled about £11billion in trades on March 8 last year after the nickel price more than tripled to over $100,000 per tonne.
The advance sparked fury among some big names in the industry whose profits were wiped out.
But yesterday, the High Court said the LME could void trades in exceptional circumstances and was not obligated to consult market players before making the decision.
It threw out claims from Elliott and Jane Street that there should be a judicial review into LME’s actions.
Cleared: The LME was facing a £372m lawsuit after it cancelled a string nickel transactions during the chaotic episode last year
Mr Justice Swift and Mr Justice Bright said the claims for judicial review ‘falter on all grounds and their challenges are dismissed’.
The judgment is a major blow for Elliott, run by activist investor Paul Singer, and Jane Street.
They were looking for compensation of about £360million and £12million respectively, and argued LME breached its own policies, favoured some traders and violated their right to ‘peaceful enjoyment’ of possessions.
LME boss Matthew Chamberlain said it moved to restore calm and avoid several clearing houses defaulting, which would have caused ‘significant and systemic damage’ to metal markets and led to a ‘death spiral’.
Several smaller lawsuits, including one filed by AQR, Flow Traders and DRW, were put on hold pending the decision in the case.
LME said: ‘This recognises the LME’s obligation to preserve orderly markets and its powers to intervene to this end, including by cancelling trades.’
Elliott said the judgment raised questions about the ‘lack of effective checks and balances on UK exchanges cancelling or varying trades in ways which may protect just one cohort of traders, or even the exchanges themselves.’
And the exchange is still being probed by the Financial Conduct Authority (FCA) over its handling of the situation.
But the FCA declined to comment on whether its probe, launched in March, had changed following yesterday’s decision.
