Hedge funds line up lawsuits over nickel market chaos

THE LONDON Metal Exchange is facing possible lawsuits from hedge funds over the chaos in the nickel market that saw $4 billion of trades suddenly cancelled.

The hedge funds and other market participants are taking advice and have been told there are legal grounds for a potential claim that would run into many millions of pounds.

Funds including AQR Capital Management are discussing a possible suit.

Two weeks ago the LME suddenly suspended trading after the price of nickel doubled. It then cancelled trades, a move which helped Tsingshan Holding, a Chinese steel producer that was “short” the market.

The LME is owned by China’s Hong Kong Stock Exchange, the HKEX.

It insists the decision to halt the market and reverse the trades was entirely its own.

One market participant close to the legal process said: “The market is awaiting to hear from the LME a clear, coherent and rational explanation of why trades were retrospectively cancelled.”

The metals exchange has been around since 1877, a central part of the growth of the City of London.

There are no fears trade will move to the Chicago Mercantile Exchange in anger at the present situation that saw 5000 trades suddenly reversed.

A source said: “The LME at risk of losing its place as the leading player.  Confidence in the whole of London as a well-regulated, transparent market based on the predictable rules is at stake.”

Mark Thompson, a mining executive and former metals trader at Trafigura Group, earlier told Bloomberg: “Suddenly the LME just looks incompetent. They need root-and-branch reform.”

The LME declined to comment on the legal action. It did say: “The situation we saw in the nickel market is unprecedented; however, we fully recognise that we must consider taking action in order to prevent such a situation from happening again. We will consider carefully any appropriate future steps we could take to further build market resilience.”