LME sets deadline for action plan to counter market distortions

The London Metal Exchange has pledged to say by the end of March how it intends to prevent any repetition of the fiasco that hit nickel trading last year and resulted in a temporary shutdown.

Worries about supplies from Russia after it invaded Ukraine and bets on lower nickel prices saw prices double within hours on 8 March 2022 to more than US$ 100 000 a tonne.

Management consultants Oliver Wyman was asked to identify the factors that contributed to the wild conditions in the nickel market and to provide LME with recommendations how it could reduce the likelihood of similar events re-occurring.

In response to its report, LME Group chief executive Matthew Chamberlain told Reuters: ‘It’s a good and fair report, it clearly identifies things that we need to improve.’

LME itself added in a press release: ‘LME Group is committed to taking all the necessary steps to rebuild the confidence of the metals market. As such, the LME Group will prepare an implementation plan, setting out how it proposes to deliver against the recommendations in Oliver Wyman’s report, which it will aim to publish to the market by the end of Q1 2023.’

According to the press release, factors identified by Wyman were the existence of large, exposed, short positions; the withdrawal of liquidity and price acceleration and resultant margin calls. It notes that LME’s controls did not manage price volatility during the events.

‘Although many of the factors discussed are structural across all metals markets, it is important to highlight, and ultimately consider, those which are specific to the nickel market,’ the release adds.

‘This includes the inherently volatile nature of nickel given the market size and its heightened exposure to geopolitical risks.’

The review did not cover decision-making processes and governance arrangements but they will be assessed in separate inquiries by The Bank of England and the UK’s Financial Conduct Authority.

LMER also faces legal action by some of the parties affected by the indicants in March 2022.