Elliott Associates has accused the London Steel Trade of speeding a call to cancel 1000’s of nickel trades final 12 months at the beginning of a court docket case that can resolve if the US hedge fund can search $456mn in compensation.
The three-day trial at London’s Royal Court docket of Justice seeks to find out whether or not the LME acted legally when it cancelled billions of {dollars} of nickel trades on March 8 final 12 months.
The landmark case will set a precedent that would have ramifications for different monetary exchanges and London’s position as a commodity buying and selling hub. It’ll additionally lay the groundwork for several other similar cases which were filed in opposition to the LME associated to its dealing with of the nickel market disaster.
The LME’s uncommon determination to “wind again the clock” on eight hours of nickel trades on March 8 got here after nickel costs surged 270 per cent over three buying and selling days, triggering record intraday margin calls of round $7bn in a single day on March 7.
The Monetary Conduct Authority can also be investigating the LME over the nickel market disaster, the FCA’s first ever enforcement investigation of an change.
Elliott and market maker Jane Road International Buying and selling argue the LME violated their rights by cancelling nickel contracts, thus allegedly depriving them of their possessions, and are in search of mixed compensation of $470mn.
Court docket paperwork revealed on Tuesday depicted a chaotic and at occasions disjointed decision-making course of contained in the LME, because the escalating nickel value — and related margin calls — threw the market into disaster.
The claimants allege LME chief government Matt Chamberlain did not sufficiently seek the advice of along with his personal committees and market members earlier than making the choice to wind again the clock.
In its defence, the LME mentioned Chamberlain did seek the advice of the senior management of the LME earlier than his determination on the nickel trades, and that two dozen senior executives had been unanimous in recommending the choice.
The LME says its actions on March 8 “averted vital and systemic injury to the nickel market in addition to different metals markets and derivatives markets extra extensively”.
It added: “In urgent and extraordinary circumstances, the LME always acted in accordance with its guidelines and regulatory obligations and within the pursuits of the market as an entire.”
Following this week’s trial, the decide will decide whether or not the LME’s actions had been lawful. If they’re discovered to be illegal, a second trial shall be held relating to the extent of compensation.
Elliott additionally accused the LME of “defending one cohort of market members on the expense of one other, by defending LME Members (or the LME itself) from the chance of default,” in keeping with the skeleton argument filed by legal professionals appearing on behalf of Elliott.
“The LME’s perform is to permit buying and selling between prepared consumers and sellers; it doesn’t embody defending market members from the implications of unhealthy buying and selling choices,” the skeleton argument says.
The LME defence says the change was entitled to behave for the aim of system threat, and held a regulatory duty to make sure orderly buying and selling.
Of their arguments the LME legal professionals are additionally anticipated to take goal on the hedge funds themselves. “This case issues spinoff merchants forgoing speculative earnings which they by no means really acquired beneath industrial preparations,” reads the skeleton argument submitted by the LME’s legal professionals.
