US hedge fund Elliott Management is suing the London Metal Exchange for more than $456 million over its decision to cancel nickel trading in March following an unprecedented spike in the metal’s price.
Elliott filed a two-way through and Clearing on Monday said.
The lawsuit by the Florida-based group, which was founded by billionaire Paul Singer, alleges that the cancellation of a nickel contract transaction on March 8 was “unlawful on the basis of public law and/or violations of the human rights of the claimants”.
LME HKEX will oppose that claim “strongly” and consider it “futile”, HKEX said.
Elliott’s lawsuit relates to the 145-year-old exchange’s decision to cancel a day’s worth of nickel trading and suspend trading for eight days in March.
It will add to the exchange’s woes as it battles to restore its reputation as the world’s leading venue for trading in industrial metals including nickel, which is used to make stainless steel and battery for electric vehicle.
The decision to suspend trading follows a 250% increase in nickel prices to a record $100,000 per tonne. activated by a short squeeze as banks and brokerage firms rushed to close part of the large positions accumulated by Xiang Guangda, the billionaire founder of China’s top stainless steel maker Tsingshan Holding Group.
Nickel is currently trading at over $28,000/ton.
The LME’s decision to remove a trading day because of a spike in prices – which it claims has pushed some of the exchange’s smaller members to the brink of failure – stir up an uproar among some merchants who saw their profits wiped out by this move.
AQR Capital Management, one of the world’s largest hedge funds, is exploring legal options in its dispute, people familiar with the matter said in March. The fund’s founder alleges LME “reverses trades to save your favorite buddies and rob your unloved customers”.
LME has denied that parent company HKEX influenced its decision.
The move also caused the UK’s financial regulators in April to give a review into “market turmoil” in nickel contracts during this time.
LME CEO Matthew Chamberlain backed the decision to leave digital asset startup Komainu in April as the exchange struggled to rebuild its reputation. It also gave an assessment of the turbulence of the nickel market.
The LME has said that one reason it didn’t react earlier to the nickel price squeeze is that it didn’t know how much of its over-the-counter business was through derivatives.
Chamberlain is working on a plan to more frequently report on these positions in all of the LME’s actual delivered metals. However, members have resisted similar moves to be more transparent in the past.
The exchange also said in March that it would nearly double the size of the fund protecting the general market against the sudden collapse of one of its members.
Elliott did not immediately respond to a request for comment.
