The stock exchange is faced with high claims for damages. However, according to the LME, the suspension of nickel trading was necessary to protect the market as a whole.
(Photo: Reuters)
Frankfurt The chaos in nickel trading in early March could have expensive consequences for the London Metal Exchange (LME). The American hedge fund Elliott has sued the stock exchange operator for $456 million in damages, according to the LME owner, the Hong Kong Stock Exchange (HKEX).
After a massive rise in the price of nickel, the LME suspended trading in the raw material for several days. In addition, numerous nickel transactions that had already taken place during March 8 were cancelled.
Many market participants have sharply criticized the actions of the LME, and the British supervisory authorities have also started an investigation. Elliott’s lawsuit is putting pressure on the LME, after all, the hedge fund founded by Paul Singer is known for its tenacity. He once argued with Argentina for 15 years about servicing government bonds.
According to HKEX, Elliott filed two-vehicle complaints on June 1 in the English High Court against the London Metal Exchange and its clearing house LME Clear. The decision to halt the nickel trade “contradicts public law and/or constitutes a violation of human rights,” according to Elliott’s lawsuit. Elliott initially did not comment on the lawsuit itself.
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The London Metal Exchange rejected the claims for damages. “LME management believes the claims are unfounded. The LME will defend itself against this with all means.” According to the LME, the suspension of nickel trading was necessary to protect the entire market.
Chinese tycoon plays a key role
Nickel is particularly important for the refinement of steel products. The raw material also plays an important role in the manufacture of batteries for electric cars, for example. One of the world’s largest nickel exporters is Russia. Even before the start of the Ukraine war, there was a shortage of supplies for the raw material.
On March 8, the nickel price then doubled within a few hours and temporarily reached a new record high of $101,365 per ton (93,038 euros). One reason for this was feared delivery bottlenecks as a result of the Russian war of aggression in Ukraine and the sanctions imposed as a result.
However, the Chinese tycoon Xiang Guangda also made a significant contribution to the turbulence. With his company Tsingshan, one of the world’s largest nickel and steel producers, he had bet on falling nickel prices on the LME on a large scale – and was caught on the wrong foot.
Nickel producers and other market participants often take what are known as short positions in the metals market in order to hedge against potential losses in the value of their physical metal inventories. They aim for price movements in physical inventory and short positions to offset each other.
LME has already drawn the first conclusions
For such hedging, however, buyers must regularly deposit collateral, so-called margins. When prices rise sharply, they have to put up increasing amounts of collateral to meet margin calls.
You will then receive a so-called “margin call” with which further funds are requested. If they don’t pay, they can be forced to close their position, which in turn can cause major dislocations in the overall market.
The LME has already drawn the first conclusions from the incidents when nickel trading resumed in mid-March and introduced price limits. The company also announced an independent investigation into the market turmoil.
Allegations that trading had been stopped because Tsingshan, like the LME parent company HKEX, was a Chinese company were rejected by LME boss Matthew Chamberlain. “The reason we intervened was not because of the customer’s nationality, but because of the size and systemic influence of the customer,” Chamberlain said. “We would have done so regardless of his nationality.”
More: London Metal Exchange Suspends Trading in Nickel – Chinese Tycoon Apparently Gambled