Court of Appeal rejects challenge to London Metal Exchange nickel ruling

A commodity trader has lost a Court of Appeal challenge against a ruling that the London Metal Exchange (LME) acted lawfully by suspending and cancelling nickel trades following a “dramatic and unprecedented spike” in the metal’s price.

Elliott appealed against a High Court judgment from 2023 which found the LME and its subsidiary, LME Clear, lawfully suspended nickel trading on the morning of March 8, 2022, following the rapid price spike before cancelling trades completed that day hours later.

Lawyers for Elliott previously claimed that the decisions caused it to lose around 456 million US dollars in net profit, and told the Court of Appeal in July that the LME did not have the power to cancel the trades and that the decision to do so was “irrational”.

But in a judgment on Monday, three judges unanimously dismissed the appeal, with Lord Justice Males stating that the price spike was a “once-in-a-generation event” which warranted the LME’s decisions.

The LME was legally required to ensure that it had the power to cancel trades in the event of extreme price movement during a short period, which is precisely what occurred on the morning of 8th March 2022.

Lord Justice Males

He said: “The LME was legally required to ensure that it had the power to cancel trades in the event of extreme price movement during a short period, which is precisely what occurred on the morning of March 8 2022.

“That was a once-in-a-generation event.

“To have allowed the March 8 trades to stand would have meant a real risk of what has been graphically described as a ‘death spiral’ in the international metals market.”

Nickel is the metal used in stainless steel and is key to the production of rechargeable lithium ion batteries.

Prices of the metal rose as it became harder to source, due in part to the Ukraine war and sanctions against President Vladimir Putin’s regime, given that Russia is one of the biggest producers of nickel.

Lord Justice Males said that in the days leading up to March 7, 2022, the trading price of 3M nickel – nickel due for delivery in three months – was between 27,000 and 29,000 US dollars per tonne.

Lord Justice Males

But the price had risen rapidly by the early hours of March 8, peaking at 101,365 US dollars per tonne before trading was suspended, with the decision to cancel trades taken later that day.

The market did not reopen until March 16, 2022, with the suspension marking the first time the LME had frozen trading for a metal since the collapse of an international tin cartel in 1985, sparking criticism over the way the 145-year-old exchange handled the crisis.

Lord Justice Males, sitting with Lord Justice Singh and Lord Justice Underhill, said in his judgment that the cause of the spike was not known at the time, but a later investigation “suggested that it was due to the fact that large short positions had been built up by a number of market participants”.

In his judgment, he said that the LME had “effectively no choice” but to suspend and cancel trading.

He continued: “The cancellation struck a fair balance between the rights of Elliott, which, if it had thought about it, should have realised that it was concluding the trades in question in exceptional market conditions where there was a real risk that the power to cancel would be exercised, and the interests of the market as a whole as well as of those in the wider economy who might be affected by a market crash.”