© Reuters. FILE PHOTO: Traders work on the floor of the London Metal Exchange, in London, Britain September 27, 2018. REUTERS/Simon Dawson/File Photo
LONDON (Reuters) – Hedge fund Elliott Associates and Jane Street Global Trading JSGT) are seeking to sue the London Metal Exchange (LME) for a combined $472 million after the LME cancelled nickel trades on March 8 when prices soared to top a record $100,000 a tonne.
The nickel trading debacle is the biggest crisis to hit the world’s oldest metals forum in decades.
The trades were cancelled because some LME members with short positions could not pay the margins – that cover losses in the event of member defaults – required by the exchange’s clearing house LME Clear.
At one point on March 8 that margin requirement would have totalled $19.7 billion, court documents submitted by the LME seen by Reuters show.
The LME has said it considers that Elliott’s and Jane Street’s grounds for complaint are without merit, and the LME will defend any judicial review proceedings vigorously.
Following are some extracts from the court documents filed with the London High Court by Elliott, Jane Street and the LME, which were seen by Reuters.
EXTRACTS FROM LME COURT DOCUMENTS
“The price movements on 7 March were very substantial and they required LME Clear to issue margin calls during the morning. The last increase was issued at 13:00, by which point the cumulative intra-day increase in margin requirement was approximately $7bn, being nearly three times the previous record increase set as recently as the preceding Friday, 4 March.”
“Although the price movements on 7 March were substantial, the LME considered that the market remained orderly as at the close of business that day.”
“LME and LME Clear executives became aware of the significant price spike around 06:00 (on March 8), after which they began to consider whether to suspend the market. During the course of a call between LME and LME Clear executives starting at about 07:30 the LME decided to suspend nickel trading on all LME trading venues.”
EXTRACTS FROM ELLIOTT ASSOCIATES COURT DOCUMENTS
“The Elliott Trades were for the sale of, in aggregate, 9,660 metric tonnes of Nickel deliverable on dates in June and September 2022. In total, the Claimants stood to receive gross proceeds of $728,067,420 in respect of the Elliott Trades.”
“… had the Claimants sought to replicate the Elliott Trades at the earliest opportunity on 22 March 2022 and sold the same quantity of nickel, they would have received $271,675,920 gross proceeds, which is $456,391,500 less than the 8 March Proceeds. Accordingly, the Cancellation Decision caused loss to the Claimants in the amount of $456,391,500.”
“In their 8 April 2022 letter, on which they still rely as setting out the relevant factual circumstances, the Defendants’ solicitors expressly stated that the decision to suspend the market and the decision to cancel trades were both taken by “the LME and LME Clear Executives.”
EXTRACTS FROM JANE STREET COURT DOCUMENTS
“As explained…(i) the total proceeds due on the trades where JSGT was the seller were USD 40,132,619.76; (ii) the total purchase cost of the trades where JSGT was the buyer was USD 7,478,340.06; and (iii) JSGT was therefore due to receive the net sum of USD 32,654,279.70.”
“JSGT claims damages of USD 15,343,698.92 (plus interest thereon) in respect of its loss on the cancellation of the Jane Street Trades.”
“It is inimical to the purpose of the Exchange, as a neutral trading venue, for the LME to cancel trades to protect Particular market participants at the expense of other market participants.”