Traders, brokers and clerks shout and gesture at the London Metal Exchange
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- The Financial Conduct Authority and the Bank of England will review the LME’s decision to suspend nickel trading.
- The LME halted nickel trading on March 8 after prices surged over 50% within hours to hit $100,000 a ton.
- Traders were angered by the LME’s decision to cancel all nickel trades for the day, worth almost $4 billion.
The London Metal Exchange is under review by UK regulators after it halted nickel trading on March 8 and suspended all nickel trades for the day, a decision that caused chaos in the market and angered traders.
The Financial Conduct Authority and the Bank of England said on Monday they will review the exchange’s decision that cost billions in lost trades.
Nickel prices skyrocketed to $100,000 a ton on March 8, surging by at least 50% in a matter of hours, as Russia’s invasion of Ukraine pushed up commodity prices and triggered a short squeeze on the LME. The LME in response halted trading and canceled almost $4 billion worth of trades.
The FCA and BoE said in a joint statement that they are focused on the LME conducting trading in an orderly and stable manner after trading resumed.
“However, after a period of stability, the FCA intends to review the LME’s approach to managing the suspension and resumption of the market in nickel to determine what lessons might be learned in relation to the LME’s governance and market oversight arrangements,” a joint statement from the regulators said.
“The Bank will similarly undertake a review into the operation of LME Clear during the period to determine whether any lessons might be learned in relation to its governance and risk management.”
The FCA and the BoE said they will use these reviews to decide whether any further action is needed, with further steps to be announced soon.
The LME said it welcomed the announcement from the regulators and said it would set up its own independent review of the events of March 8. The exchange said the review would serve to determine whether any further investigatory or disciplinary steps were needed.
“The LME is committed to ensuring that the actions of all participants (including the LME itself) are fully reviewed, and appropriate actions taken to both restore confidence and support the long- term health and efficiency of the market.”
Nickel is one of a number of commodities that has surged in price since Russia unleashed war on Ukraine. Russia is the third-largest producer of nickel, and sources 17% of the world’s high-purity supply. Sanctions imposed on the country over the war spooked an already tight market.
Many producers, traders, and brokers were left worrying that they might collapse when the price surged above $100,000, especially if forced to buy at that level to cover existing positions. The metal has traded between $10,000 and $20,000 for much of the past decade.
Chinese metals producer Tsingshan, owned by tycoon Xiang Guangda, was at the forefront of the massive nickel price surge. Xiang had amassed a big short position and when the nickel price began to rally, brokers and banks rushed to close part of Xiang’s position, buying back nickel and pushing up the price in a classic short squeeze.
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