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Elliott challenges LME nickel trades court verdict

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US-based hedge fund Elliott Associates has asked a London court to overturn a previous verdict that upheld the London Metal Exchange’s (LME) March 2022 decision to cancel $12bn worth of nickel trades, according to a report by Reuters.

Elliott is arguing that the exchange failed to disclose crucial documents ahead of the original court hearing concerning its decision to annul the trades when nickel prices skyrocketed to over $100,000 per metric ton within a few chaotic hours.

Elliott Associates and Jane Street Global Trading subsequently filed a lawsuit seeking $472m in compensation, alleging that the 146-year-old exchange had acted unlawfully. However, in November, London’s High Court ruled that the LME was justified in canceling the trades due to exceptional circumstances and was not required to consult market participants beforehand.

During the appeal, Elliott’s lawyers revealed that the LME had only recently disclosed documents detailing its “Kill Switch” and “Trade Halt” procedures, as well as an internal report outlining potential conflicts of interest. “It was troubling that one gets disclosure out of the blue in the Court of Appeal for the first time,” said Monica Carss-Frisk, representing Elliott. Jane Street Global Trading did not appeal the initial ruling.

Elliott believes that if these documents had been available during the original trial, they might have sought permission to cross-examine witnesses. However, the LME’s legal team argued that the new documents are irrelevant to the case. “The disclosed documents do not affect the reasoning of the divisional court or the merits of the arguments on appeal,” the LME stated.

The LME maintains that it had both the authority and the obligation to cancel the trades to prevent a financial crisis. The exchange cited a record $20bn in margin calls that could have led to the default of at least seven clearing members, posing a systemic risk. The LME argued that Elliott’s appeal merely repeats arguments that were “previously and rightly rejected”.

Elliott’s appeal also claims that the ruling diluted protections under the Human Rights Act and incorrectly concluded that the LME had the authority to cancel the trades. The firm further argued that LME CEO Matthew Chamberlain acted irrationally and lacked the necessary information to make an informed decision. “Mr Chamberlain’s evidence indicates that he himself was unclear as to the ambit of the powers available to the LME,” Elliott stated.

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