Human technology

London Metal Exchange hires Oliver Wyman to review nickel trade

On rare occasions, stock exchanges sometimes halt trades or even cancel trades when technological glitches and human error cause one-time errors. It’s even rarer for a trade to cancel entire sessions, before taking days to allow free trade to resume, however. Yet that is what the London Metal Exchange did in March, and the shock waves are still being felt.

Russia’s invasion of Ukraine wreaked havoc on many markets, but one of the most notable was nickel. As demand for the metal began to skyrocket at the start of the war, vulnerabilities within the exchange were suddenly exposed, leaving

But it’s rare that entire sessions are canceled after the fact, or that days are taken to allow trading to resume freely. Yet that is what happened with one of the oldest financial institutions, the London Metal Exchange, or LME. Russia’s invasion of Ukraine triggered a period of chaos in the nickel market, exposing vulnerabilities in the exchange. The price of nickel soared 250% in just over 24 hours, prompting the exchange to suspend trading on March 8, 2022.

The London Metal Exchange sets global benchmark prices for critical metals, including copper and aluminium. He then sees around $60 billion worth of futures contracts being traded daily, more than half of the world total. However, this centrality in the market also meant that his actions caused huge problems for traders around the world.

The suspension and cancellation of nickel trading as the commodity was poised to boom has inevitably drawn ire from producers and traders who depend on London Metal Exchange prices of the metal used to make the steel stainless steel and electric vehicle batteries. Some felt so aggrieved that they have since sued the stock exchange – including US hedge funds Elliott Associates and Jane Street Global Trading, which are suing the LME for $456m and $15.3m respectively over canceled nickel transactions.

Many other critics of the move have used the ruling to push for more transparency in what is widely seen as one of the darkest corners of the financial industry. Responding to this pressure, the London Metal Exchange has since confirmed the appointment of management consultancy Oliver Wyman for an independent review of the events that led to the suspension of nickel trading.

Review of the situation

Oliver Wyman is a professional services firm with more than 5,000 professionals worldwide. The company advises customers on how to improve their operations and is expected to conduct the review until December, after which it will endeavor to publish a report on its findings.

The exchange confirmed in a statement that the review will examine factors that “contributed to market conditions … during the period leading up to and including March 8, 2022 and make recommendations to reduce the likelihood of similar events occurring.” . However, the assessment will not cover the decision-making processes and governance arrangements of the exchange and its clearing house, LME Clear. Instead, these topics will form part of regulatory reviews to be undertaken by the UK Financial Conduct Authority and the Bank of England.

Among the factors contributing to the spike in nickel prices, it is believed that short hedging by one of the world’s leading nickel producers, China’s Tsingshan Holding Group, will be at the heart of Oliver Wyman’s investigation. . The London Metal Exchange has since added that the large short positions came mainly from the over-the-counter (OTC) market, for which it has introduced new checks.