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Surge in nickel prices threatened to blow $2.6 billion hole in key LME entity
By Harry Dempsey and Philip Stafford
Financial Times, London
Thursday, December 1, 2022
A surge in nickel prices in March threatened to topple a London Metal Exchange entity designed to keep troubles in a single market from infecting the financial system, according to the fullest accounting to date of a crisis that has shaken confidence the 145-year-old venue.
LME's clearing house faced a $2.6 billion loss in early March when the price of nickel jumped more than 200% in a single day, while a stability fund that provides a further layer of protection would have been nearly wiped out, legal filings published this week show.
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The disclosures shine light on why senior executives made the highly irregular decision to halt trading and cancel billions of dollars of deals in a fraught period on March 8.
The group's filings came as it combats a $470 million legal challenge launched by U.S. hedge fund Elliott Management and Jane Street. The LME, which is owned by Hong Kong Exchanges and Clearing, has been accused of failing to perform its regulatory duty when it cancelled the trades.
Prices for nickel, used in steelmaking and electric car batteries, surged 230% in a day, leaving LME members potentially needing to kick in $20 billion in margin payments, cash required for trading. That was 10 times higher than the previous record of March 4 and a level that threatened to tip it and its members into a "death spiral".
At the center of the chaos was a huge bet on falling prices made by Chinese steel producer Tsingshan, which was upended by the big move higher in prices.
The LME said it was forced into its emergency measures as up to seven of its members could have defaulted on payments due to its clearing house if it had let eight hours' worth of trades stand. ...
... For the remainder of the report:
https://www.ft.com/content/7ec79ce2-3968-47e2-97a6-f9bd961cc73d
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