US hedge fund Elliot Associates is suing the London Metal Exchange (LME) for $456 million for suspending trading of nickel futures contracts and cancelling trade of the metal.

The legal action mounts more pressure on the LME, which is being probed by regulators and is struggling to restore trust and volumes in its nickel market.

Fund manager Elliott Associates contended that the LME should not have halted trading and erased deals after prices more than doubled to over $100,000 a tonne in a matter of hours on March 8, 2022. Again, numerous technical glitches after trading resumed on March 16, 2022, left traders fuming.

Elliot Associates claimed the trade cancellation was “unlawful on public law grounds” and “constituted a violation” of its rights, according to the filing.

The LME and LME Clear Limited have been named as defendants in the judicial review claim filed in a British court by Elliott Associates and Elliott International last week, the LME’s parent company Hong Kong Exchanges and Clearing said.

An Elliott spokesperson said that the LME had acted “unreasonably and irrationally in particular by taking into account irrelevant factors, including its own financial position”.

LME Takes Action to Protect Market

The LME, the world’s largest and oldest market for industrial metals, noted it had to take action to protect the market as a whole when trading became disorderly. In a statement, the exchange said it had “an important role to play in ensuring the market is fair and orderly for all those who wish to participate”.

It added that the nickel market had become disorderly, and that it had cancelled deals from midnight on March 8, 2022, in an attempt to return the market to the time when it had last been orderly. “The LME therefore considers that Elliott’s grounds for complaint are without merit, and the LME will defend any judicial review proceedings vigorously,” the statement read.

Elliott Management, founded and co-led by billionaire Paul Singer, is known for activist investing. The Elliott spokesperson did not state what LME nickel positions it had when deals were cancelled.

The last time the LME was sued was nearly a decade ago when Russian aluminium giant Rusal sought to derail proposed LME reforms aimed at easing huge backlogs to withdraw metal from its global warehousing network. The LME initially lost the case, but won an appeal allowing it to go forward and implement the reforms.

In May 2022, the LME proposed measures that it stated would improve transparency and stability in the over-the-counter (OTC) metals market, including more frequent disclosures of all positions.

HKEX said the LME dismissed the claim in its statement. “The LME management is of the view that the claim is without merit and the LME will contest it vigorously,” HKEX said.

HKEX shares closed up 1.6 per cent, underperforming the broader market index. HSI, which gained 2.7 per cent. Its rival CME Group has started talking to market participants about the idea of a cash-settled nickel contract for companies, as cited by Reuters.