The London Metal Exchange had no senior management monitoring the market as nickel prices surged in Asian trading last year before it cancelled billions of dollars of trades, a lawyer for Jane Street Global Trading told a London court on Wednesday.
U.S.-based hedge fund Elliott Associates and market maker Jane Street Global Trading (JSGT) say the LME unlawfully cancelled trades made on March 8, 2022, after the nickel price doubled in a matter of hours.
They are seeking a combined $472 million in damages.
The 146-year-old exchange argues it was justified in closing the market and cancelling trades because $19.7 billion of margin calls would otherwise have led to the defaults of multiple clearing members and created systemic risk.
Jane Street's lawyer James Segan said on the second day of the hearing at London's High Court that even though the LME bills itself as a global, 24-hour market, it had only low-level staff on duty in Asia from 1 a.m. London time when the market opened.
"During a critical period... in fact no-one was monitoring the market," he said. "It was a breach of its obligations to the market."
Elliott and Jane Street say surging prices were fuelled by an LME operations team removing nickel price bands during Asian trading, but the LME says this was not significant.
LME Chief Executive Matthew Chamberlain was not even aware that the price bands had been lifted when the decision was taken to suspend trading, court documents show.
Jane Street also says the LME failed to consult with itself and other financial firms before the decision to cancel trades even though they were due to lose millions of dollars.
"The defendants afforded JSGT no opportunity to make representations before it was taken and instead conducted a one-sided consultation with certain other market participants who stood to benefit from it," Jane Street said in a court filing.
On Tuesday, Segan said the LME had provided a "multi-billion-dollar bailout" to Tsingshan, owned by Chinese tycoon Xiang Guangda, which held large short positions that helped spur the explosive rise in nickel prices.
Chamberlain, in his witness statement, rejected the suggestion trades were cancelled "in the interests of particular market participants, in particular entities within the Tsingshan Holding Group".
Elliott and Jane Street accept the LME has the power to cancel trades in "exceptional cases".
But their lawyers argue that the LME had no power to unwind transactions to prevent defaults or tackle systemic risks.
The two firms also say the LME considered there were rational market forces, such as the impact of potential sanctions on Russia as a result of its invasion of Ukraine, explaining significant price rises on March 7.
However, they argue, it failed to investigate whether increases the following day were also rational.
