In one of the most shocking events in London trading circles, last month’s massive short squeeze on nickel led the London Metal Exchange to make the controversial call to tear up some $4bn in trades. The move wiped an an estimated $1.3bn in returns for those holding long nickel positions, and may have helped stem the losses of those who were short, leading some traders to say they may ditch the LME for good. More than a month later, that may now be playing out. Funds held 48,878 lots long of nickel as of 4 March, the week before nickel trading was halted, according to Commitment of Traders reports, released by the LME and detail positions held by market participants. One month later, the number of lots long tumbled about 31% to 33,520. Bearish positions in nickel also fell, from 9,932 lots short to 9,197 lots during the same timeframe. John Mothersole, a director at S&P global market intelligence, told Financial News the CoT reports, “show investors as a trading group [are] backing away.” AQR Capital Management may be one of them. The investment firm co-founded by Clifford Asness says it had a long position on nickel on 8 March, the day the LME wiped trades already on the books. Asness raged against the LME on Twitter, rebutting the exchange’s stance that cancelling trades was necessary because nickel prices were “no longer reflecting the underlying physical market”. Jordan Brooks, co-head of macro strategies at AQR, says that while the firm continues to manage its nickel positions on the LME, there will come a time to review. READUK regulators to probe LME’s nickel fiasco after exchange cancelled $4bn in trades “Down the road, we will take a step back and evaluate the future of business we do with the LME,” Brooks told Financial News. When asked what the LME would need to do to restore confidence for market participants like AQR, Brooks said: “The LME would have to demonstrate a commitment to fair and transparent actions going forward.” An LME spokesperson said, “We fully recognise the impact of these events on a broad spectrum of market participants, and understand that not all participants agreed with the course of action undertaken. “We are committed to ensuring that the actions of all participants (including the LME itself) are fully reviewed, and appropriate actions taken to both restore confidence and support the long-term health and efficiency of the market.” Though the LME is one of the few exchanges that trades nickel, there are dozens of exchanges that have experience serving as a marketplace for other metals. “Ultimately, we live in a competitive economy,” Brooks said. “And I certainly wouldn’t be surprised if other exchanges aren’t going to be looking to increase their footprint materially in base metals. That’s the beauty of free markets.” Brooks told FN that it is not the suspension that has irked traders but the cancellation of trades. “Cancelling trades that were made in good faith, by willing counterparties, and at the expense of one party to protect the other party, is completely antithetical to the purpose of exchanges,” said Brooks. When trading finally resumed a week later on 16 March — which was also plagued with problems — open interest in nickel was thin. Data from IHS Markit found that open interest in various metals traded on both the LME and the Shanghai Futures Exchange — the other major exchange that trades nickel — have declined, signalling less liquid markets. Mothersole said lower open interest can be attributed to fewer market participants trading the asset class. READMetals guru on the ‘apoplectic rage’ of nickel traders over LME debacle “This matches reports that market participants have retreated, at least temporarily, from trading because of higher initial margins and/or difficulties in obtaining letters of credit for transactions,” he said. The LME said the drop in open interest across non-ferrous such as nickel, aluminium and copper was due to high volatlity and “geopolitical instability”. The LME told FN, “Open interest has fallen broadly in line with expectation, and is a trend that is evident across commodity markets – driven by the risk-off sentiment among financial investors.” It’s still unclear where the long term trends will land. But Mark Thompson, a veteran metals trader and hedge fund manager, says to expect a drop in trading on the LME. “We’re in the middle of a massive bull market,” Thompson, now an executive at mining development firm Tungsten West, told FN last month. The Ukraine war has led to a supply crunch and energy and commodity prices worldwide have soared. “Volume should be expanding enormously right now, but I don’t think we’re going to see that. We’re going to see volumes shrink.”
Is the LME owned by the Chinese government now by any chance? Why is it acting like the Chinese government when it interfered in the steel market in China last year? Our financial market is the last place where it's supposed to be free, free from control and interference from the government. Let's keep it that way. We already have the circuit breakers and that's more than enough. What the DTCC did in the meme stock phenomenon was despicable and yet it's the only entity that was not subject to a congressional hearing. If you are going to act like a casino that only allows you to play when you bet on the wrong colour on the Russian Roulette and immediately cancels your bets when they see you bet on the correct colour, then nobody is going to come to play. Nobody will be willing to put in their money only to lose all the time. If you want people to play, you have to let them play. Eventually, the exchanges are going to go out of business and everybody will go OTC.
The LME was owned by its members until 2012, when it was sold to Hong Kong Exchanges and Clearing for £1.4 billion.[4] https://en.wikipedia.org/wiki/London_Metal_Exchange#cite_note-4 I thought the tactic looked familiar. LOL Well now that its ownership is revealed, I am not surprised. And I bet you it's the CCP that's funded the purchase of the LME too. China's a huge steel importer so it's only natural that it wants to get its hands on one of the largest metal exchanges in the world. Why are people still trading on an exchange directly owned by the CCP? It's almost those traders' fault for not knowing that the CCP is one of the entities that carry out the most frequent market interference. Whenever the market is not going in the direction that it likes, it never hesitates to go into the market and tries to force it to go the way it wants. Apparently, this time, the short squeeze was triggered by the concern about how the sanctions on Russia would bear on Russian nickel exports because of the war. And we know who's on Russia's side this time.
AQR leads 10 hedge funds suing LME over nickel trade debacle Bloomberg News | March 6, 2023 https://www.mining.com/web/aqr-leads-10-hedge-funds-suing-lme-over-nickel-trade-debacle/ The London Metal Exchange floor (Image: HM Treasury – Flickr) AQR Capital Management formally filed a London lawsuit against the London Metal Exchange, joining nine other hedge funds in a series of claims targeting the exchange’s decision to cancel billions of dollars in nickel trades last year. AQR and DRW Commodities previously sought key documents from the exchange in court and alongside Flow Traders BV, Capstone Investment Advisors LLC and Winton Capital Management Ltd. are seeking around £80 million ($96.3 million), according to the LME. The fresh legal action adds to troubles for the world’s biggest metals exchange flowing from its move on March 8 last year to suspend nickel trading and cancel contracts amid a runaway short squeeze. The LME has argued the action was necessary to avoid a $20 billion margin call that could have threatened the bourse’s own survival. Pala Investments Ltd. and other funds including Commodity Asset Management LLC also filed a suit in London on Monday. The LME said in a Hong Kong Stock Exhange filing that the AQR lawsuit is “without merit.” The statement didn’t refer to the Pala claim. The move effectively bailed out top nickel producer Tsingshan Holding Group Co., which had positioned itself for a fall in prices, as well several LME brokers who were facing huge margin calls. On the other side of the trade were hedge funds and algorithmic investors, many of whom reacted with fury as their hugely profitable contracts were torn up. The new claim follows judicial review proceedings brought by Elliott Investment Management and Jane Street last year. LME said in the filing in its statement that the AQR claims will be on hold pending the outcome of those. The UK’s market regulator last week opened a rare enforcement investigation into the LME’s conduct during the crisis, in a move that could potentially lead to large fines and formal criticism. The Bank of England also said it will appoint an independent monitor to oversee an overhaul of the LME’s clearinghouse. A year on from the squeeze, the LME nickel market remains plagued by low liquidity that’s contributing to erratic price swings and undermining confidence in its role as a global benchmark. The bourse is planning to finally reopen the market during Asian trading hours later this month, which it hopes will provide a significant boost to liquidity. Commodity Asset Management, Pala Investments Ltd., Welton Investment Partners and Sunrise Capital Partners were all contacted for comment. Pentimon Ltd. couldn’t be reached for comment. (By Upmanyu Trivedi and Mark Burton, with assistance from Jonathan Browning and Eddie Spence)
LME profits fall to 8-year low as nickel crisis hits exchange Bloomberg News | May 19, 2023 Markets Europe Nickel London Metal Exchange. (Image by Kreepin Deth, Wikimedia Commons.) Profits at the London Metal Exchange fell to the lowest in eight years in 2022, as the massive short squeeze that brought the nickel market to a juddering halt in March took its toll on the exchange. The LME’s annual profit fell 27% to $56.1 million, the lowest since before a hike in trading fees in 2015, according to its annual report. The drop was primarily due to lower volumes, which fell 7.5% as traders stepped back from the exchange following the week-long suspension of the nickel market, as well as increased expenses for legal and other professional fees. Since the nickel crisis, the LME has been the object of strident criticism by some prominent fund managers, with Citadel founder Ken Griffin describing the events as “one of the worst days in my professional career in terms of watching the behavior of an exchange.” It is the target of legal action from hedge fund Elliott Investment Management and trading firm Jane Street over its decision to suspend the nickel market and cancel billions of dollars in trades. In its report, the exchange described the total value of the claims, at $471 million, as “material,” but said that it had insufficient information to estimate their financial impact. “There remains a risk that other market participants may also seek to bring claims in relation to these matters,” it said. A separate annual report from LME Clear, the LME’s clearinghouse, showed that its profits fell 29% to $21.4 million, the lowest full year of earnings since it started operations in 2014. Its spending on legal and professional fees jumped 592% to $4.5 million. The LME was bought by Hong Kong Exchanges & Clearing Ltd. for $2.2 billion in 2012. In HKEX’s annual report published earlier this year, Chief Executive Nicolas Aguzin said that 2022 had been “a challenging year but also a seminal year” for the LME. “As a parent company, HKEX continues to fully support the LME as it connects capital markets to the physical world,” he said. (By Jack Farchy)