(Bloomberg) — Hedge fund Elliott Investment Management renewed its legal fight with the London Metal Exchange over the 2022 nickel crisis, saying that the exchange failed to disclose crucial documents that show how it could have responded to the runaway short squeeze.
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Elliott argued in the Court of Appeal on Tuesday that the exchange’s boss ignored the role of his own monitoring teams before he took the “unprecedented and momentous” decision to cancel billions of dollars of nickel trades.
An LME internal document said that the trading operations team, which operates the market’s trading curbs, was meant to “detect potential threats to the orderly functioning of the market,” according to filings made for the London hearing this week. Instead chief executive officer Matthew Chamberlain alone made the key decision that the market was “disorderly.”
The LME was catapulted into the global spotlight in March 2022, drawing widespread criticism after it suspended the nickel market and retroactively canceled $12 billion of trades. Elliott sought to have the cancellation declared unlawful, claiming the decisions cost it more than $450 million. The fund is now appealing a previous ruling that the exchange had a wide discretion to take the urgent decisions that it did.
Lawyers for the LME said the additional documents don’t change the lower court’s finding.
Nickel prices initially started rising as the invasion of Ukraine sparked fears about the impact on supplies from Russia, but the spike accelerated as holders of short positions rushed to close out the trades. Tsingshan Holding Group Co. faced billions of dollars in trading losses as prices jumped more than 250% in little over 24 hours, and the LME’s decision to cancel trades effectively served as a bailout for the world’s top nickel producer and other holders of short positions.
The court case shone a harsh light on the exchange’s decision-making during the crisis, with filings and witness statements revealing how the LME was in the dark about what was really driving nickel prices during the unprecedented surge, and that its top executives were asleep as the market spiraled out of control.
In responding to Elliott’s appeal, Chamberlain disagreed with the role of the trading operations team, insisting that they were there simply to “determine whether trades were between willing buyers and sellers and not to form a view as to whether the market was in an orderly or disorderly state,” according to a new witness statement.
“Elliott’s appeal is largely a repetition of the arguments which were advanced, and rightly rejected,” the LME said. “The LME continues to maintain that the decisions taken on 8 March 2022 averted significant and systemic damage, not just to the nickel market but also to the LME’s other metals markets.”
Elliott is challenging the significant degree of latitude exercised by the LME to intervene in the market, saying that the lower court’s ruling goes beyond that of a traditional defendant such as a government department. The court had said that by entering into a contract with the exchange, Elliott effectively knew that the LME could cancel trades. Elliott argues that the LME should be considered like any other regulator.
Meanwhile, the LME is still facing a rare misconduct probe by the Financial Conduct Authority, the first public action of its kind targeting a UK exchange. The regulator is focused on the LME’s actions, systems and controls in the run-up to the suspension of the nickel market.
(Updates with details from LME’s court filings throughout)
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