Regulators quiz LME over nickel price chaos

The governance, market oversight and risk management of the London Metal Exchange is being reviewed by the UK’s Financial Conduct Authority (FCA) and Bank of England following the turmoil over the price of nickel in early March.

‘After a period of stability, the FCA intends to review the LME’s approach to managing the suspension and resumption of the market in nickel to determine what lessons might be learned in relation to the LME’s governance and market oversight arrangements,’ the two bodies said in a joint statement.

On 8 March, the LME suspended nickel trading having concluded a disorderly market had arisen in which prices doubled overnight. Nickel trading resumed eight days later.

The FCA will review the suspension and resumption of the nickel market while the central bank will review the operations of LME’s clearing house. They will also talk to some of the trading firms involved.

‘Now that trading has resumed, the supervisory authorities expect LME and LME Clear to remain vigilant until the situation is fully resolved, the statement said. ‘However, after a period of stability, the FCA intends to review the LME’s approach to managing the suspension and resumption of the market in nickel to determine what lessons might be learned in relation to the LME’s governance and market oversight arrangements.’  

The Bank of England review will consider the operation of LME Clear relation to its governance and risk management.
‘Events around the suspension and resumption of trading have underlined questions raised in a recent LME discussion paper on market structure, particularly the role of transparency in the LME and related markets,’ the statement added. ‘The FCA has been in discussion with the LME on its proposals for some time and expects the LME to consider carefully how recent events should shape its future approach on market structure. 

Meanwhile, the LME has agreed to appoint additional independent directors to strengthen its governance and will now review ‘the best way to achieve this in the context of the skills and composition of its board’.