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UK regulator launches investigation into nickel LME trading


A British financial watchdog on Friday began its first-ever investigation into a British exchange for possible misconduct following the London Metal Exchange’s decision last year to halt trading in nickel.

However, it was unclear whether the investigation would look into the exchange’s controversial decision to cancel billions of dollars worth of trades.

The largest and oldest metals market in the world canceled all nickel trading in March last year after chaotic price action, suspending trading for the first time since 1988.

The March 8 suspension came after prices doubled within hours to more than $100,000 a ton, according to sources attributed to shortcovering by one of the world’s top producers.

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The move has led to lawsuits with investors, while the nickel contract continues to break with volumes falling, leaving the industry without an effective global reference price.

A statement from the Financial Conduct Authority (FCA) said it had launched an “enforcement investigation” into the conduct and systems and controls the LME had put in place between January 1 and the suspension of trading on March 8, 2022.

Two lawyers said it appeared the watchdog was limiting its investigation to the decision to stop trading, and would not cover the more contentious decision to cancel trades.

“The statement shows that the FCA is not going to look into the canceled transactions,” said a regulatory attorney who declined to be named.

The watchdog said it would not comment further on the investigation.

On enforcement investigations, the website says: “We will initiate an investigation if we have reason to believe that serious misconduct may have occurred.”

This was the first such action the FCA has launched against an exchange, a spokesperson said.

“The decision by the FCA to open this investigation into an exchange is a bold move,” said James Alleyne, legal director at law firm Kingsley Napley.

“The FCA’s decision to launch an investigation means that it believes there are circumstances that suggest that LME may have committed serious misconduct. Such a finding would certainly have significant implications for LME’s costs and reputation. “

The FCA did not give a timeline, but Alleyne said the case could take years to conclude.


The 146-year-old LME said it had taken active steps to improve the liquidity and transparency of the nickel market, including daily price limits of 15% and over-the-counter (OTC) position reporting for all physically delivered metals.

“The LME will fully cooperate with this process and will continue to take appropriate steps to ensure the long-term health, efficiency and resilience of its market,” the statement added.

In its statement, the FCA acknowledged that the LME had committed to a broader package of market reforms, adding that it was encouraged by the exchange’s focus on transparency.

The FCA and Bank of England (BoE) began an investigation last April into the trading freeze by the LME, owned by Hong Kong Exchanges and Clearing.

On Friday, the BoE said separately that its assessments had pointed to several shortcomings at LME clearing house LME Clear, adding that it would appoint an independent observer to review and report on the corrective actions.

“The dual approach of the FCA and the Bank represents an important and potentially unprecedented development,” said Adam Topping, a commodities and financial regulatory specialist at the law firm Holman Fenwick Willan.

Topping added that it showed how seriously they take perceived compliance shortcomings.

In January, management consulting firm Oliver Wyman released an independent review of the nickel trading debacle, and the exchange said it would prepare an implementation plan for the report’s recommendations by the end of March.

The nickel crisis, spurred in part by large OTC short positions in nickel, shed light on the failure of a core reform of the global financial crisis to help regulators quickly spot destabilizing risks in markets.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.