Litigation and nickel

This article was written by Martin Hayes. All views and opinions expressed are strictly his own.

In the long-running stream of litigation by disgruntled large investors and traders against the London Metal Exchange over actions at the height of the 2022 nickel market saga, the recent finding by the UK Court Of Appeal may indicate that the legal process is nearing its end.

If so, it would not only draw a highly-important line under one aspect of the many after-effects of the events of March 2022, but it also conceivably underlines a key principle of the LME’s regulatory oversight regime – its ability to decide what constitutes a disorderly market, and – critically in the case of nickel – it’s subsequent intervention.

To recap – in the early hours of March 8, 2022, the price of LME nickel exploded from around $50,000 per tonne at 0100 local, briefly to peak at $101,365 before the exchange suspended trading at 0815. The LME then cancelled the trades carried out, totalling $12 billion. This was against the background of key nickel producer Russia’s invasion of Ukraine.

US hedge fund Elliott Associates, who claimed damages of $456 million, together with traders Jane Street, sued the LME for what it felt was unlawful intervention by the Exchange. The UK High Court initially found in the LME’s favour in late-2023 – a ruling that was upheld by the Appeal Court in October 2024.

This follows similar claims brought by a handful of other funds and traders in 2022, which have also been dismissed by the UK courts.

The Appeal Court said the nickel case was a ‘once in a generation event’, and that the LME was lawful in its actions, which prevented a possible ‘death spiral’ in the overall market because of the knock-on effects to metals business on the exchange.

Furthermore, the LME’s actions did not breach Elliott’s human rights, which seemingly rules out action in the ECHR (European Court of Human Rights). The claimants are now mulling their future options, while other would-be litigants are looking on.

Going forward, the outcome suggests that the LME was well within its rights to make what was an unprecedented intervention – the cancellation of trades against the background of the viability of the wider and much larger metals market, and not just its nickel contract.

The LME has always had some responsibility for what takes place on the exchange in its recognised contracts, and its ability to intervene. As the global and UK regulatory regimes have both developed and evolved over the decades, so has the scope of the LME’s intervention powers.

Whether by accident or deliberate design, undesirable situations and the threat of disorderly markets have occurred many times. In tin in 1985, it was a result of the former - a multi-government failure to provide funds for market price support. By contrast, 1995’s copper crisis stemmed from unauthorised rogue trading by an individual.   

In tin, the LME authorities of the time – very much market practitioners - suspended trading, and largely resolved the fall-out, as there was no UK financial market regulatory body until the late 1980s.

Moving on, in copper in 1996, the market continued to trade, and although there were UK financial regulators by then, the LME board, who dealt with the consequences and instituted reforms, were still largely from metal trading backgrounds.

However, one common theme in tin, copper, and in some other metals over that time span, like zinc, there was the lingering suspicion that LME market intervention decisions were being made by senior parties that had vested interests in trading. In other words, short holders were being left off a dire financial hook.

This is not the case in the 21st century – the LME is a much larger organisation than 50 years ago, and very few of its employees and key decision-makers, if any, stem from the highly-specialised world of metals and minerals exchange trading.

The interventions of March 8, 2022, taken by senior officials at the LME and LME Clear, notably cancelling trades, undoubtedly had negative and positive financial implications for market participants.

But the Appeal Court’s rulings suggest that they were both justified, and carried out without bias – a key principle, going forward, if there is a repeat of the events of March 2022.

Martin sets out the position adopted by the Court very clearly here. There is, however, in my mind a question that perhaps readers may find worth considering: is it really an ideal situation to have the size of staff that the LME does, with none of them from a metal trading background?

GS