UK regulator launches probe into LME nickel trading halt
BRITISH financial regulators took weighty action on Friday (Mar 3), including a probe into possible misconduct, over the decision last year by the London Metal Exchange (LME) to halt nickel trading and cancel billions of dollars of trades.
The world’s largest and oldest metals market annulled all nickel trades in March last year after chaotic price action, and suspended the market for the first time since 1988.
The suspension on Mar 8 came after prices doubled to more than US$100,000 per tonne in a matter of hours, in a surge that sources blamed on short covering by one of the world’s top producers.
The move spurred legal action, while the nickel contract remains broken with volumes sliding, leaving the industry without an effective global reference price.
In a statement, the Financial Conduct Authority (FCA) said that it had launched an “enforcement investigation” into the LME’s conduct, systems and controls that the exchange had in place between Jan 1 and Mar 8 last year.
The watchdog said that it would not make any further comment about the probe. Its website says: “We will start an investigation where we have reason to believe serious misconduct may have taken place.”
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The LME said that it had taken active steps to enhance nickel market liquidity and transparency.
“The LME will cooperate fully with this process, and will continue to take the appropriate steps to ensure the long-term health, efficiency and resilience of its market,” it added.
Both the FCA and the Bank of England (BOE) began a review into the trading halt last April.
On Friday, the BOE separately said that its reviews had pointed to several shortcomings at LME clearing house LME Clear. The bank added that it would name an independent monitor to assess and report on its remedial actions.
In its statement, the FCA said that the LME had implemented changes to its control framework, and had committed to a wider package of market reform. The watchdog added that it was encouraged by this focus on transparency.
Last June, the LME appointed management consultants Oliver Wyman to carry out a review of the nickel trading debacle. The exchange has said that it would communicate an implementation plan for the review’s recommendations by the end of this month.
The LME faces lawsuits from US hedge fund Elliott Associates and trading firm Jane Street Global Trading, which are suing the exchange for US$456 million and US$15.3 million respectively for the cancelled nickel trades. REUTERS
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