Hedge fund lawsuits are piling up against the London Metal Exchange one year after its controversial decision to cancel nickel trades, with the venue now facing legal claims in excess of $500mn.
Three further legal actions have been filed by 10 hedge funds and one small trading company in London courts this week, deepening a crisis for the world’s largest metals exchange.
The LME is battling to rebuild its reputation after suspending and cancelling nickel trades when prices more than tripled in one day a year ago on Wednesday. The unprecedented move came after a bet on falling prices backfired on Tsingshan, the world’s largest nickel producer, when they skyrocketed owing to investor fears of sanctions on Russia.
The exchange is already subject to an enforcement investigation by the UK’s top financial watchdog over the decision to suspend trading, while traders say its benchmark contract for the industrial metal remains dysfunctional.
AQR Capital Management is among claimants pursuing £80mn in damages, according to the exchange’s parent company, Hong Kong Exchange and Clearing (HKEX), pushing total claims faced by the LME to $567mn.
Claimants are suing for losses related to the exchange’s decision to wipe out almost $4bn worth of nickel trades, a move the LME argues was necessary to maintain the orderly functioning of the market. AQR’s case, which also includes DRW Commodities, Flow Traders, Capstone Investment Advisors and Winton Capital Management, are claiming the cancellation of trades by the LME was an unlawful interference with their human rights.
Two further claims — by a further set of hedge funds including Commodity Asset Management and Sunrise Capital Partners, and small trading company Double Eight — were filed on Tuesday, although it is not clear how much the claimants are pursuing in damages.
The new claims come a week after the LME became the target of the Financial Conduct Authority’s first ever enforcement investigation, which could result in censure and fines for the exchange.
They add to pressure on the LME, which has been sued in judicial review claims by hedge fund Elliott Management and market maker Jane Street for a total of $476mn. The AQR claim comes from a group of five investors that previously had a disclosure request against the LME thrown out by the courts, and will effectively be on hold until the outcome of the judicial review.
Nickel is a vital commodity for steelmaking and batteries used in electric cars, making a functioning market important for producers, consumers and traders to hedge against moving prices and to keep supply and demand in balance.
“It should be stressed that the LME always acted in the interests of the market as a whole,” HKEX said in a statement regarding the AQR case.
The LME said the AQR case was “based on a fundamental misunderstanding of the situation” and it “remains confident that it will successfully defend the claims brought against it”. It declined to comment on the other two cases.
The LME plans to reopen Asian hours trading for nickel, which have been shut since the crisis, in just under two weeks in a bid to boost liquidity after trading volumes on its contract collapsed by two-thirds this year.