UK regulators probe LME halt in chaotic nickel trade

LONDON, April 4 (Reuters) – Britain’s financial regulators on Monday launched a sweeping investigation into how the London Metal Exchange (LME) halted chaotic nickel trading last month, a move that has sparked controversy. angry protests from market participants and damaged the stock exchange’s reputation.

Intervention by the Financial Conduct Authority (FCA) and the Bank of England (BoE) has been unusually broad and hard-hitting, aimed at ensuring London is seen as a well-run financial center as it faces tough competition growing, industry sources said.

The LME, the world’s oldest and largest industrial metals market, suspended nickel trading on March 8 after prices soared more than 50% within hours to $100,000 a ton. Read more

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When trading resumed on March 16, the LME struggled with technical issues for several days after imposing price limits, leaving traders furious.

The new probes highlight a flurry of criticism of the LME, both from those who wanted the market to stay open and others blaming the LME for delaying action.

Malcolm Freeman, managing director of broker Kingdom Futures, said there were several warning signals but the LME had no choice but to halt trading.

“You could have seen every storm cloud brewing on Friday (before the Tuesday close),” he said.

“But if that had been left in place, you would have had billions of pounds in debt, busted LME brokers and the exchange technically insolvent.”

Regulators said the episode underscored questions about the 145-year-old LME’s transparency and that they would determine whether further action should be taken.

Several surveys will take place. The FCA will examine how the exchange handled the situation, the LME will commission its own independent investigation, while the BoE will examine the LME’s clearinghouse.

PRICE LIMITS

The LME welcomed the probes and said its own review hoped to identify actions to minimize the risk of a disorderly market going forward. It noted that it introduced daily 15% upper and lower price limits for all its physically delivered metals when it restarted nickel trading.

Stable financial markets are important to Britain, which hopes the EU will allow clearinghouses like LME Clear to continue serving bloc customers after June 2025. read more

Britain’s departure from the EU has largely severed the country’s financial services ties to the bloc.

The FCA and the Prudential Regulation Authority will review companies that held senior positions to assess their risk management and governance.

The price spike that triggered the halt was blamed on short hedging by one of the world’s leading producers, China’s Tsingshan Holding Group. Read more

Tsingshan acknowledged having taken a stand and announced a standstill agreement with the banks. The LME did not name Tsingshan and is keeping its members’ positions confidential. Read more

The LME, owned by Hong Kong Exchanges and Clearing Ltd (0388.HK), said large short positions in nickel came mainly from the over-the-counter (OTC) market organized by banks and brokers.

Other participants in the nickel crisis had long positions and could take advantage of the price spike.

“It’s not an easy situation to resolve,” said Tom Price, head of commodity strategy at Liberum.

“We have what appears to be a guy with a massive short position, and a situation where we may never know if he was protected by the LME or if the LME was just protecting his platform and wider community from traders,” Price said. noted.

“Those who lost the opportunity to make money on this short-covering business are still furious and awaiting a real outcome of the investigation.”

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Reporting by Eric Onstad; Additional reporting by Kate Holton, Iain Withers and Huw Jones; Editing by Veronica Brown and David Holmes

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