Updated: Jun 12, 2022
Elliot Management, a US hedge fund, is suing the London Metal Exchange (LME), a subsidiary of Hong Kong Exchanges and Clearing (HKEX) for over $456mn over canceling nickel trades in March after a dramatic surge in the metal price. Here is what happened.
In late February, Russia- Ukraine War has led to supply shortages in commodities including oil, wheat, corn and metal which has driven up the commodities prices. The price of Nickel, a type of metal, has doubled to over $100,000.
While the nickel price kept climbing, stainless metal and Nickel producer, Tsingshan Holding Group has been shorting Nickel futures to lock up the selling price in the future. However, even though TsingShan Holding will be able to deliver nickel in the future as a nickel producer, the nickel price spike caused banks and brokers to rush to offload part of their large position. This may potentially leads to Tsingshan Holding could not maintain the margin and goes bankrupt, banks and brokers have to take the huge loss.
To avoid the devastating impact, LME decided to suspend its nickel market on March 8 and controversially canceled $3.9 billion of nickel trades.
This move has rescued several brokers from the potentially ruinous margin calls, and bailed out TsingShan Holding, but it also wiped out huge profits for those investors that held bullish bets.
One of the victims, Elliot Associate, is now suing LME, claiming that LME should not have halted trading and erased deals. A week later, Jane Street Global sues LME for $15.3 million for canceling nickel trades, the second legal claim it has faced this week.