Hedge funds Elliott Associates and Jane Street Global Trading have thrown the world’s oldest metals forum, the London Metal Exchange (LME), into turmoil by launching a massive $472 million lawsuit. The lawsuit comes in the wake of the LME’s controversial decision to cancel nickel trades in March 2022, as prices skyrocketed to an all-time high above $100,000 a tonne in a chaotic trading session.
The cancellation of trades on March 8 last year plunged the LME into its biggest crisis in decades, leaving both consumers and producers stranded without crucial benchmark prices. The reputation of the 145-year-old exchange took a severe hit, as the fallout from the trading debacle reverberated throughout the industry.
The legal battle between the hedge funds and the LME kicked off on Tuesday with a judicial review of the exchange’s decision. If found guilty of wrongdoing, the LME could face a second trial to determine the extent of compensation owed to the aggrieved parties.
The LME has defended its decision to cancel trades, arguing that failure to do so would have resulted in $19.7 billion in margin calls, potentially leading to the bankruptcy of multiple clearing members and systemic market risk. The exchange maintains that it had the authority and responsibility to act in the best interests of the market under such extreme circumstances.
As the legal proceedings unfold, the intricacies of margin calls and the consequences of defaults by LME members have come under the spotlight. The outcome of this high-stakes legal battle will not only shape the future of the LME but also have far-reaching implications for the global metals market.
