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Markets

High Court tosses out case by LME traders for disclosures on nickel debacle

A London court has dismissed a case by hedge fund AQR Capital Management and other market participants against the London Metal Exchange, relieving the bourse from a request to disclose further information about its March decision to cancel billions dollars worth of nickel trades.

Mr Justice Adrian Beltrami said on Friday that he deemed “the merits of the case as weak” and the disclosure request to be too wide-ranging, even if there had been a “good arguable case of wrongdoing” against the world’s most important hub for metals trading.

In September, AQR and four other companies filed a court application in London against the LME that was intended to get the 145-year-old exchange to hand over notes and transcripts from telephone calls and meetings to enable them to decide whether to pursue further legal action.

DWR Commodities, Flow Traders, Capstone Investment Advisors and Winton Capital Management were the other claimants with the five companies estimating earlier this week that they collectively lost $95mn of profits as a result of the LME’s intervention.

The dismissal in the High Court in London marks a small reprieve for the LME, which has been under severe pressure since March when it suspended and cancelled huge volumes of nickel trades after prices surged 250 per cent to more than $100,000 per tonne in under a day as a result of a short squeeze.

A bet on falling prices by Tsingshan, the world’s largest stainless steel producer run by Chinese industrialist Xiang Guangda, collided with fears of supply disruptions out of Russia, a large producer of the industrial metal.

That led to accusations that the LME, which is owned by Hong Kong Exchanges and Clearing, acted in favour of a Chinese company, while others said that it should have acted sooner to avoid the need to erase trades.

However, the LME still faces lawsuits from hedge fund Elliott Management and market maker Jane Street, which are together claiming damages totalling almost $500mn.

The LME released last month its detailed grounds of defence against the pair of firms, which laid out how close the nickel market meltdown came to blowing out into a “death spiral” for the exchange and its members that would have threatened to cause a systemic collapse across metals markets.

The LME, which was represented by Hogan Lovells, said in a statement that: “This application was misconceived from the start — the LME having already provided a detailed explanation of its decision making — and we are pleased that it has been dismissed in its entirety”.

An independent review by consultancy Oliver Wyman into the circumstances leading up to the LME’s decision to cancel eight hours’ worth of nickel trades is due next month.

AQR said it was “disappointed the court did not see the need for additional disclosure from the LME following their unprecedented decision to unilaterally cancel agreed upon trades earlier this year. We continue to evaluate all legal options available to us.” 

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