UK financial regulators will probe the London Metal Exchange’s handling of a week-long suspension of nickel trading amid chaotic conditions at the start of Russia’s invasion of Ukraine.
The LME suspended trading in nickel, a key material for electric car batteries, on March 8 after prices doubled to a record $100,000 (£76,200) in one day) a tonne. Trading in the metal reopened after a week, on March 16th.
The exchange’s regulators, the Financial Conduct Authority (FCA) and the Bank of England (BoE), said in a joint statement on Monday the trading freeze underscored previously raised questions about the structure of the market and “particularly the role of transparency”.
Vladimir Putin’s invasion of Ukraine had raised concerns about nickel supplies from Russia. Headquartered in Moscow, Nornickel is the world’s largest supplier of refined nickel mined in Siberia. The company is headed by Vladimir Potanin, an oligarch who is among the richest men in Russia. He and his company have not been sanctioned by the US, EU or UK.
Amid the market chaos resulting from the invasion, the LME caused an uproar among metals traders by canceling all trades made on March 8, a step it says it had to take to ensure orderly trading and prevent minor ones Members of the exchange go bankrupt.
The LME on Monday said the moves leading up to its trading suspension were “unprecedented”. It has set a 15% limit on daily market movements in metals for physical delivery, which it says has met with widespread support, and will commission its own independent review of the mess.
It said: “The LME fully recognizes the impact of these events on a wide range of market participants and understands that not all participants agreed with the course of action taken. The LME wanted to act in the interest of the overall market and takes note of the concerns expressed by some market participants.”
The exchange said it had already identified an issue with the lack of visibility of trades that took place off-exchange — known as “over-the-counter” deals — which helped push the price higher.
The FCA will “review the LME’s approach to managing the suspension and resumption of the nickel market to determine what lessons could be learned in relation to the LME’s governance and market surveillance arrangements” while the BoE looks into LME Clear, the subsidiary will handle the actual transactions.
The FCA made it clear that the LME needs to make changes after the turmoil. It said it “expects the LME to carefully consider how recent events should shape its future approach to market structure.”
Regulators will also be speaking to trading firms to assess their risk management.