UK watchdog launches enforcement probe into LME’s nickel trades

The UK financial watchdog has begun an “enforcement” investigation into the London Metal Exchange when the exchange moved to freeze and cancel billions of dollars’ worth of nickel trades in response to a historic price surge.

The Financial Conduct Authority said on Friday it will take action to monitor the LME’s efforts to improve its conduct, controls and governance that came under pressure when it suspended the nickel market a year ago.

The FCA will probe some of the conduct, systems and controls in place at the LME between the start of 2022 and March 8, when it froze nickel trades.

In a separate statement, the Bank of England said that it plans to appoint an independent monitor to report regularly on the progress by LME Clear, the exchange’s clearing house, to improve its governance and risk management.

Nickel prices more than trebled on a single day last March as fears of sanctions on large producer Russia collided with a bet on falling prices by Tsingshan, the world’s largest stainless steel producer, threatening to cause wider market meltdown. The trading crisis has subsequently eroded confidence in the functioning of the nickel market.

The enforcement action follows a review by the BoE into LME Clear and an independent review by Oliver Wyman, which the central bank said collectively found “several shortcomings across LME Clear’s governance, management and risk management capabilities”.

The LME said in a statement that it will communicate a plan to implement the recommendations from its independent review at the end of the first quarter and will resume nickel trading during Asian hours on March 20 in a bid to boost trading liquidity.

It added that it “will co-operate fully” with the FCA’s enforcement investigation and “will continue to take the appropriate steps to ensure the long-term health, efficiency and resilience of its market”.