UK regulator launches investigation into LME’s halt to nickel trade

Natalie Portman
By Natalie Portman 5 Min Read
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By Iain Withers and Eric Onstad

LONDON (RockedBuzz via Reuters) – A British financial watchdog on Friday launched its first-ever probe into a British exchange for possible misconduct following the London Metal Exchange’s decision last year to halt trading in nickel.

It was unclear, however, whether the investigation would look into the exchange’s controversial decision to cancel billions of dollars of trading.

The world’s largest and oldest metals market canceled all nickel trading in March last year after chaotic price action and halted trading for the first time since 1988.

The March 8 suspension came after prices doubled to more than $100,000 a ton in a matter of hours in a spate of sources accused of short-covering by one of the world’s top producers.

The move has prompted legal action from investors as the nickel contract remains broken with volumes declining, leaving the sector without an effective global benchmark price.

A statement from the Financial Conduct Authority (FCA) said it had launched an “enforcement investigation” into the conduct, systems and controls the LME had in place between January 1 and the trading suspension on March 8, 2022.

Two lawyers said it appeared the watchdog was limiting its investigation to the decision to halt negotiations and would not cover the more contentious one to cancel the negotiations.

“It appears from the filing that the FCA will not review reversed transactions,” said a regulatory attorney who declined to be named.

The watchdog said he would not comment further on the investigation.

Its website says of the enforcement investigation: “We will begin an investigation where we have reason to believe serious misconduct may have occurred.”

This was the first such action FCA has filed against a swap, a spokesman said.

“The decision by the FCA to open this investigation into a trade is a bold step,” said James Alleyne, general counsel at law firm Kingsley Napley.

“The fact that the FCA has decided to investigate means that it believes there are circumstances which suggest that the LME may have committed serious misconduct. Such a finding would certainly have significant costs and reputational implications for the LME.”

The FCA did not provide any timeline, but Alleyne said the case could take years to conclude.


The 146-year-old LME said it has taken active steps to improve the liquidity and transparency of the nickel market, including 15% daily price limits and over-the-counter (OTC) position reporting for all physically delivered metals.

“The LME will fully cooperate with this process and continue to take appropriate steps to ensure the long-term health, efficiency and resilience of its market,” its statement added.

In its statement, the FCA acknowledged that the LME had committed to a broader package of market reforms, adding that it was encouraged by the exchange’s focus on transparency.

The FCA and the Bank of England (BoE) launched a review last April into the trading halt by the LME, owned by Hong Kong Exchanges and Clearing.

The BoE separately said on Friday that its reviews pointed to several deficiencies at clearing house LME Clear, adding it will appoint an independent monitor to assess and report on its corrective actions.

“The FCA and the Bank’s dual-pronged approach represents a significant and perhaps unprecedented development,” said Adam Topping, commodities and financial regulation specialist at law firm Holman Fenwick Willan.

Topping added that it demonstrated how seriously they take any perceived compliance deficiencies.

In January, management consultancy Oliver Wyman released an independent review of the nickel trading debacle, and the exchange said it would finalize an implementation plan for the report’s recommendations by the end of March.

The nickel crisis, spurred in part by large short positions in OTC nickel, shed light on the failure of a key reform of the global financial crisis to help regulators quickly identify destabilizing risks in markets.

(Reporting by Iain Withers and Eric Onstad; Additional reporting by William Schomberg, Kirstin Ridley and Pratima Desai; Editing by Veronica Brown, Jason Neely, Jan Harvey, David Goodman and Paul Simao)

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