Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The London Metal Exchange has won a landmark legal victory against traders who sued over its decision to cancel billions of dollars worth of nickel trades as England’s High Court dismissed claims it acted unlawfully.
The world’s largest metal exchange was accused by hedge fund Elliott Management and market maker Jane Street Capital of making hasty and unlawful decisions during a crisis in the nickel market last year, when prices more than tripled in one day.
The case against the 146-year-old City of London institution has been closely watched in global finance as an important legal assess of the powers of exchanges to restore orderly trading in stressed markets.
The LME cancelled about $12bn worth of trades on the grounds that the nickel market had become “disorderly”, a decision that wiped out both outsized gains and losses among its members.
Its handling of the chaos sparked uproar among several traders and led to a wave of litigation. Paul Singer’s Elliott sought compensation for lost profits totalling about $456mn and Jane Street $15mn.
But in a ruling handed down on Wednesday, Mr Justice Swift and Mr Justice Bright said Elliott and Jane Street’s claims for judicial review “falter on all grounds and their challenges are dismissed”.
Elliott said it would appeal, warning it was “concerned about the precedents that it establishes”.
The Florida-based hedge fund, which manages about $59bn, said the ruling raised “fundamental questions” about an “absence of trade certainty” and “a lack of effective checks and balances on UK exchanges”.
The nickel price surge, over the space of a few hours in March 2022, came after a large bet on falling prices made by Chinese steel producer Tsingshan coincided with market concerns about sanctions against Russia, a top exporter of the metal.
The LME said it had to take action to avert a broader market meltdown. Chief executive Matthew Chamberlain told the court that such dramatic moves posed a “systemic risk” to the market. He feared many users would have defaulted on margin calls and faced severe financial difficulty had it let the trades stand.
The claimants’ legal case was unusual because they were seeking a judicial review, which are normally brought against public sector authorities to challenge their decision making.
They based their case on several legal grounds, including that the LME acted beyond its powers and failed to consult parties who would be disadvantaged by its decision.
But the judges at the Administrative Court, a specialist venue within the King’s Bench Division, highlighted that LME’s trading rules allowed it to “cancel, vary or correct” trades if the venue “considers it appropriate”.
The court also noted the “urgency” of the situation and said it was for the LME to “carry out whether, whom and how to consult, and they are entitled to a wide margin of discretion”.
They added: “Even if a consultation had taken place, we consider it very unlikely that it would have made any difference.”
In a statement on Wednesday, Chamberlain said the LME was “pleased that the court has ruled in our favour on all grounds”. He added that the exchange had “focused on strengthening and enhancing our markets” following the crisis.
Nicolas Aguzin, chief executive of Hong Kong’s HKEX, which owns the London exchange, said the LME had “acted throughout with the utmost integrity, placing the interest of the market as a whole front and centre at all times”.
