LME Under Investigation Over Nickel Market Chaos

Britain’s Financial Conduct Authority (FCA) and the Bank of England (BoE) announced a joint investigation on the London Metal Exchange (LME) to find out what is happening in the exchange’s ongoing nickel market turmoil.

The LME suspended disorderly nickel trading on March 8 after prices doubled to a record $100,000 a tonne in a few hours on expectations that China’s Tsingshan had to buy metal to cover its short position.

The FCA regulates the LME, while the Bank of England regulates the exchange’s clearing house. Both institutions will also regulate the banks and investment firms who use the metal exchange.

The FCA will look into the LME’s approach of managing the suspension and resumption of nickel trading. The regulator hopes to take some lessons from the LME’s governance and market oversight arrangements. The BoE will look at what changes may be needed at LME’s clearing house.

The BoE and FCA will also conduct meetings with firms that held significant nickel positions to assess the effectiveness of their risk management and governance.

Market officials believe many factors need clearing up in order to keep London’s integrity as a global financial center.

The impact of Russia’s invasion of Ukraine on the commodity market and the extent of systemic issues at the exchange that need to be tackled are two of the questions that need answering.

The FCA and BoE review will also be supported by LME funded independent fact finding reports, which will help the regulators decide if enforcement is needed.

The LME has already agreed with regulators to appoint independent directors to the board to improve governance.

Market participants want to know how decisions were made and what they were based on. They are particularly interested in finding if the LME should have allowed night trading on March 8 after nickel prices jumped 90% to $55,000 a tonne on the previous day.

Metal industry participants believe this should have raised a red flag for the exchange, which eventually suspended trading on March 8 at 0815 London time.

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