LME fined £9.2m over nickel market chaos

(Sharecast News) - The London Metal Exchange has been fined more than £9m by the financial watchdog after it was unable properly manage a spike in volatility in nickel trading. In early March 2022, trading in three-month nickel futures contracts experienced a sudden wave of extreme volatility.

Prices soared to $100,000 in the space of a day, more than double the previous closing price, forcing the LME to suspend the nickel market for eight days.

All trades that took place on 8 March were also cancelled.

The Financial Conduct Authority investigated and on Thursday ruled that the systems and controls LME had in place to ensure orderly trading had not been adequate.

In particular, only relatively junior trading operations staff were on duty between 0100 and 0700 GMT, the LME's Asian trading hours.

"They had not been trained to recognise anything other than error trades or rogue algorithms as potential causes of a disorderly market," the FCA said.

"That meant that when price rises in the nickel contract became increasingly extreme...it was not escalated to senior LME managers. Instead, staff took steps to accommodate the price rises, even disabling the price bands, during the most extreme period of volatility."

As a result, the FCA has fined LME £13.2m, reduced by 30% to £9.2m in recognition of LME accepting the findings and agreeing to resolve the case at an early stage.

It is the first ever enforcement action the FCA has taken against a UK recognised investment exchange.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: "London's metal markets are of vital important to the UK and global economy. We expect controls that match their significance. The LME should have been better prepared."

Matthew Chamberlain, chief executive of the LME, said: "We...acknowledge that we could have provided a better line of defence to the effects of the disorder in the OTC market, which had spilled over onto the LME market in March 2022.

"The LME swiftly implemented market enhancements, and we are pleased to be able to move forward, stronger as a result."

The FCA said of the three-year investigation that it was "significantly quicker" than the average length of probes closed in 2023/24.