(Bloomberg) -- Elliott Investment Management lost its UK appeal over the London Metal Exchange’s controversial decision to halt a runaway short squeeze in the nickel market.
The LME successfully saw off the appeal by the US hedge fund in a ruling that backed the wide discretion offered to the exchange to suspend the market and cancel trades in 2022. The judges at the Court of Appeal said that Elliott’s officials “should have realized” that they were trading in a market where the exchange could halt the transactions.
“The LME was legally required to ensure that it had the power to cancel trades in the event of extreme price movement during a short period,” Judge Stephen Males said in Monday’s ruling. “That was a once in a generation event.”
Elliott said in a statement it was considering the ruling and any next steps.
The LME was catapulted into the global spotlight in March of that year, drawing widespread criticism after it suspended the nickel market and retroactively canceled $12 billion of trades. Elliott sought to have the cancellation declared unlawful, claiming the decisions cost it more than $450 million.
Nickel prices initially started rising as the invasion of Ukraine sparked fears about the impact on supplies from Russia, but the spike accelerated as holders of short positions rushed to close out the trades. Tsingshan Holding Group Co. faced billions of dollars in trading losses as prices jumped more than 250% in little over 24 hours, and the LME’s decision to cancel trades effectively served as a bailout for the world’s top nickel producer and other holders of short positions.
The court case pored over the exchange’s decision-making during the crisis, with filings and witness statements revealing how the LME was in the dark about what was really driving nickel prices during the unprecedented surge, and that its top executives were asleep as the market spiraled out of control.
“LME will continue to take necessary and appropriate measures to ensure an orderly market,” the exchange’s owner Hong Kong Exchanges & Clearing Ltd., said.
Canceling the trades struck a fair balance between Elliott’s rights and those of the wider market, the judges said. Elliott “should have realized” that it was making the trades “where there was a real risk that the power to cancel would be exercised.”
Elliott said that it “remains concerned that the LME stepped in to prevent those who were short nickel from facing the consequences of their trading decisions, thereby depriving Elliott of its lawfully earned profits.”
(Updates with comment from Elliott from fourth paragraph.)
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