Court Ruling on Cancelled Trades
The London Metal Exchange (LME) emerged victorious in a legal dispute against US financial firms, including hedge fund Elliott Associates and market maker Jane Street Global Trading. The firms had sought $472 million in compensation after the LME cancelled nickel trades worth $12 billion following a significant price surge in March 2022. The High Court in London upheld the LME’s decision, affirming the exchange’s right to annul trades under exceptional circumstances without the need for prior consultation with market participants.
Judicial Support for LME’s Decision
The ruling supported LME CEO Matthew Chamberlain’s stance that consultations would not have offered new insights into the situation at hand. Judges Jonathan Swift and Robert Bright acknowledged the gravity of the LME’s suspension and cancellation decisions and their implications for all market players. The LME’s intervention was seen as a necessary step to maintain orderly market conditions.
Implications of the Ruling
The outcome of this case was closely monitored by other exchanges due to its potential impact on their crisis management capabilities. The LME argued that the cancellation was imperative to prevent defaults by several clearing members, systemic risks, and a wider market collapse. Elliott Associates and Jane Street had accused the LME of acting unlawfully and are considering further legal actions. Elliott intends to appeal the ruling.
FCA’s Ongoing Investigation
The Financial Conduct Authority (FCA), which initiated an investigation into the LME’s conduct following the trade cancellations, stated it is reviewing the judgment in line with its supervisory role over the exchange.
Broader Market Concerns
Elliott Associates expressed concerns about the judgment’s implications for trade certainty on the LME and other UK exchanges. Jane Street emphasized the importance of honoring contracts made in good faith and the critical nature of decisions to cancel such contracts.
LME’s Position Strengthened
The court’s decision reinforces the LME’s authority to take decisive actions in extraordinary market conditions, affirming its role in ensuring market stability and integrity. This ruling sets a precedent for how exchanges can manage similar crisis situations in the future, balancing the need for market order with the interests of various market participants.