LME faces suit from funds including AQR over nickel crisis

Credit: LME

The London Metal Exchange faces a lawsuit from a group of firms including hedge fund AQR Capital Management LLC over its decision to cancel billions of dollars worth of trades after a runaway short squeeze in nickel.

AQR, DRW Commodities LLC, Flow Traders BV, Capstone Investment Advisors LLC, Winton Capital Management Ltd. filed a commercial court claim in London against the LME, according to court records made public this week.

The LME is already facing lawsuits from Jane Street and Paul Singer’s Elliott Investment Management over its handling of the March nickel crisis, when futures spiked 250% in a little over 24 hours in a massive squeeze centered around a large short position held by nickel tycoon Xiang Guangda. The LME responded by suspending the market for a week, and — most controversially — canceled about $3.9 billion of trades made at the highest prices.

The crisis shook the metals industry and has thrust the LME into the global spotlight, with critics ranging from the International Monetary Fund to Citadel Securities’ Ken Griffin. The LME’s nickel market has yet to return to normal, with trading volumes stuck at sharply lower levels, and the exchange’s relationship with many of its users remains tense. UK regulators have also announced investigations into the LME and its clearinghouse.

The action doesn’t yet contain any public documents laying out the details of the claim, but a spokesperson for Winton said it related to the LME’s decision to cancel nickel trades “which caused significant losses for many market participants.”

“The applicants seek disclosure of certain documents relating to the LME Group decision making bodies and relevant communications with market participants, to enable us to assess our legal position,” the spokesperson said, citing “the unprecedented decision to cancel agreed trades” as well as the LME’s “limited disclosures regarding its actions.”

AQR Chief Investment Officer Clifford Asness has been among the most vocal critics of the LME’s actions during the nickel squeeze, describing the events as “one of the worst things I’ve ever seen.”

The LME said it considers the latest action to be without merit.

“These documents have been issued solely for the purpose of seeking pre-action disclosure from LME and LME Clear,” a spokesperson said. “We look forward to setting out our arguments opposing the application in due course.”

(By Katharine Gemmell, Mark Burton and Jack Farchy, with assistance from Jonathan Browning)

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