The suspension of nickel trading at the London Metal Exchange (LME) is a reference case for work on estimating the margin a clearing house will call, and on an exchange's powers to halt trading and cancel trades. It is also a real example for staff who monitor members' funding or manage metals positions when markets move to extremes.

What happened

From March 4 to March 8, 2022, the price of the LME's 3-month nickel futures rose to more than three times its starting level. The 3-month contract is a futures contract settled by physical delivery in three months, and it is the most liquid contract among the LME's base metals futures1.

At 08:15 on March 8 (London time; all times below are the same), the LME suspended trading in the nickel market. At 12:05 the same day, it announced that it would cancel nickel trades concluded from 00:00 on March 82. The market reopened at 08:00 on March 163. The notional value of the canceled trades was USD 13.373 billion4.

Two groups of parties to the canceled trades, who said they had lost profits because of the cancellation, brought court claims against the LME and its clearing house, LME Clear. They were Elliott Associates L.P. and Elliott International L.P. (together, Elliott), and Jane Street Global Trading, LLC. Both argued that the decisions of the LME and LME Clear were unlawful. The High Court (a Divisional Court) and the Court of Appeal rejected their claims by October 202456.

In March 2025, the Financial Conduct Authority (FCA) fined the LME because its controls were not adequate7.

The roles of the exchange and the clearing house

The LME is a venue for trading industrial metals and a recognised investment exchange under the UK Financial Services and Markets Act 20008. LME Clear is the clearing house that takes on every trade concluded on the LME. It becomes the buyer to every seller and the seller to every buyer, so it guarantees performance of LME trades9. How clearing houses work is covered on the Central Counterparties: JSCC, LCH, CME and Others page.

Only members can trade directly on the LME. A member that has a direct contract with LME Clear is a clearing member, and clients that are not members trade through a member. Members must enter into contracts with their clients that follow the LME's rules10.

The LME and LME Clear share ownership and have some directors in common, but they are separate legal entities with separate roles11. The LME decides whether to keep or cancel trades, and LME Clear decides how margin is calculated12.

Rule 22 of the LME's trading rules provides that, when prices move sharply over a short period, the LME may temporarily halt or restrict trading and, if it considers it appropriate, cancel, vary, or correct trades13. This power derives from a requirement that the Markets in Financial Instruments Directive II (MiFID II) places on exchanges. In the court case, it was common ground that the rule should be read as allowing cancellation only in exceptional cases14.

How margin calls work

LME Clear bears the risk of default on both sides of a trade. Clearing members therefore post margin, meaning funds or collateral that cover part of the amount LME Clear would be expected to owe if a member defaulted15. Initial margin is required when a futures position is opened and is reviewed every day. Variation margin can be called even during the day when price moves leave LME Clear's cover short16.

The amount of a margin call is calculated using the latest market prices available at the time. Calls fall on every clearing member that holds a position in the metal, not only on those that traded that day, and they are calculated across all metals combined1617.

The UK version of the European Market Infrastructure Regulation (UK EMIR) requires a clearing house to measure exposures in near real time. Margin must cover the exposure expected until a position is closed out, at a level that covers the losses arising in at least 99% of the changes in exposure. If a predefined threshold is exceeded, the clearing house must also call margin during the day19.

When the price rises, calls grow for members with short positions. Consider a hypothetical example in which Company A holds a short position of 1,000 tonnes of nickel. The reference price is USD 30,000 per tonne. For simplicity, variation margin is called only for the change in mark-to-market gains and losses, and initial margin, fees, and interest are ignored.

Price (USD per tonne) Mark-to-market gain or loss on the short position (USD million) Variation margin for Company A
50,000 −20 Call of USD 20 million
100,000 −70 Call of USD 70 million
25,000 +5 Receipt of USD 5 million

If the price rises from USD 30,000 to USD 100,000, the loss is (100,000 − 30,000) × 1,000 tonnes = USD 70 million. If the price falls to USD 25,000, the gain is (30,000 − 25,000) × 1,000 tonnes = USD 5 million. Responding to calls is covered on the Handling Margin Calls page.

Timeline

Russia invaded Ukraine in February 2022. In the days before March 7, 3-month nickel traded at about USD 27,000 to 29,000 per tonne. The LME took the view that the rise on March 4 could be explained by the situation resulting from the invasion20.

A price band is an LME mechanism that automatically rejects trades at prices outside a range. If a member contacts the LME's Trading Operations Team (TOT) to confirm that a trade outside the range is genuine and not a mistake, the trade can still be accepted21.

Date and time Event
March 4 The price rose 6.8%, and the intraday calls of about USD 2.6 billion were a record22
March 7 The price rose 69% in one day, to just under USD 50,00023
March 7 Calls totaled about USD 7.05 billion, and three members failed to pay by the first deadline24
March 8, 04:49 The price reached about USD 60,000, and the LME's staff switched off the price bands25
March 8, 06:08 The price hit its high of USD 101,36526
March 8, 07:24 LME Clear circulated an estimate of the calls if it used the 07:00 price (about USD 80,000)27
March 8, 07:30 The LME's chief executive and others confirmed the suspension of trading28
March 8, 08:15 The LME suspended nickel trading in Notice 22/05229
March 8, 09:00 Senior executives of the LME and LME Clear discussed the treatment of the trades and the margin calculation30
March 8, 12:05 The LME announced the cancellation of trades from 00:00 in Notice 22/0532
March 16, 08:00 The nickel market reopened3

Why the LME chose cancellation

The 07:24 estimate put the additional margin at about USD 19.75 billion in total, and at least five members were expected to be unable to pay by the 09:00 deadline27.

The 09:00 meeting on March 8 considered whether to keep or cancel the trades together with the basis for calculating margin. The LME's chief executive had the authority to decide on the trades, and LME Clear's chief executive had the authority to decide on the margin calculation30.

Option Description Outcome of the discussion
1A Keep the trades and calculate margin at the trade prices Everyone who spoke found it unacceptable. Calls would have been about USD 19.75 billion
1B Keep the trades and calculate margin at the March 7 closing price Rejected because it would leave LME Clear under-collateralized. Additional calls would have been about USD 570 million
2 Keep the trades and adjust the prices Rejected because it would impose prices the parties had not agreed
3 Cancel the trades from 00:00 on March 8 Adopted

On Option 1A, everyone who spoke considered that the trades reflected prices in a disorderly market and were not meaningful prices. The chief executives of the LME and LME Clear thought that several members defaulting at once would be unprecedented31. On Option 1B, LME Clear's chief executive was concerned that LME Clear would be under-collateralized and that member defaults remained possible. Some attendees also felt it was inconsistent to keep the trades but not to collect margin at their prices32.

On the scope of the cancellation, no one could identify when the market had moved from orderly to disorderly. The LME's chief executive used the close of trading on March 7, the last point at which the market was clearly orderly, as the cutoff. He recognized that those who had traded at high prices and made profits would be disadvantaged33.

While the nickel market was closed, LME Clear calculated nickel margin at the March 7 closing price. The intraday calls on March 8 were paid without default, and no additional calls were needed during the closure. The market reopened once bank support for participants with short positions was in place and the LME's chief executive judged that orderly trading could resume3.

Factors found by the independent review

The LME commissioned Oliver Wyman and NERA UK to carry out an independent review and published the final report with a notice on January 10, 2023. The review covers the factors that affected conditions in the nickel market up to the decision to suspend on March 8. It excludes the decision-making and governance of the LME and LME Clear, which it left to separate reviews by the FCA and the Bank of England34. It also does not address whether any trading was suspicious35.

The report analyzed the episode as a short squeeze in nickel, in which the LME nickel price rose by more than 270% over three trading days35. The LME's notice groups the factors into the four below36. In the table, Class 2 refers to nickel products with a nickel content below 99.80%, such as nickel pig iron and ferronickel. The refined nickel behind the LME's futures is Class 137.

Factor What the report found
Build-up of large short positions Positions split between the exchange and the OTC market were hard to see, and the position limits and monitoring levels did not prevent the build-up
Sudden drop in volume available to trade (liquidity withdrawal) Nickel was volatile, and few participants were willing to take the other side of trades
Price acceleration and calls The LME's mechanisms for limiting price moves did not work, and participants doubted the resilience of some members
Sudden de-risking Class 2 producers faced basis risk in their hedges, and procedures for closing out positions had not been worked out

Class 2 producers may sell their products at local market prices. The LME price is for refined nickel, but producers had hedged at that price, so when the LME price rose sharply, a gap opened between that price and their selling prices36.

The LME had dynamic and static price bands, but they did not stop the surge35. According to the judgment, a later investigation suggested that the surge was caused by large short positions built up by several participants. One was a short position held in the OTC market by Tsingshan, a Chinese industrial user of nickel38. The FCA's Final Notice analyzes the interaction between very large OTC positions and the LME's market as the biggest driver of the price moves from March 4 to 8. OTC trades take place outside the LME's market, so the LME could not see those positions at the time39.

The report gives three aims for its recommendations: to identify and prevent market distortions, to manage extreme events, and to restore confidence. Specific measures include LME-specific position limits, monitoring of large OTC positions, and stronger mechanisms for limiting price moves. The LME notes that the recommendations remain high-level and that implementation plans must be developed separately40.

What changed afterward

The outcome of the litigation

Elliott claimed to have lost net profits of about USD 456 million because of the cancellation, and Jane Street about USD 15 million41. They asked for declarations that the decisions of the LME and LME Clear were unlawful, and also sought damages for breach of property rights under the Human Rights Act42.

On November 29, 2023, the Divisional Court of the High Court (Administrative Court) held that the LME and LME Clear had acted lawfully and rejected both claims. Jane Street did not appeal5. On October 7, 2024, the Court of Appeal unanimously dismissed Elliott's appeal, with three judges agreeing6.

The Court of Appeal made the following points. By law, the LME must have the power to cancel trades when prices move sharply over a short period, and Rule 22 of the trading rules was that power. Keeping the March 8 trades would have posed a real danger of a chain of failures across the international metals market (in the judgment's words, a "death spiral"). The LME and LME Clear were entitled to conclude that Option 1B would put LME Clear in breach of its regulatory obligations, and that left effectively no alternative to cancellation43.

On whether Elliott's trades were property under the Human Rights Act, the Court of Appeal expressed the view that they were property, if it had to decide the point (the lower court had held that they were not). It held, however, that the right came with the power of cancellation attached in advance, so there was no interference, and that any interference would in any case be justified44.

On January 28, 2025, the Supreme Court refused Elliott permission to appeal, finding that the application raised no arguable point of law45.

The response of the authorities

On April 4, 2022, the FCA, the Prudential Regulation Authority (PRA), and the Bank of England issued a joint statement. The FCA would review how the LME managed the suspension and reopening, and the Bank of England would review the governance and risk management of LME Clear. Both said they would use skilled persons under section 166 of the Financial Services and Markets Act 2000. The LME acknowledged the benefit of adding independent directors46.

On March 3, 2023, the Bank of England said its review had found several deficiencies in the governance, management, and risk management of LME Clear. It required LME Clear to strengthen its governance, make its management and governance more independent, and improve its risk management. It planned to monitor progress using skilled persons47.

In its Final Notice of March 19, 2025, the FCA imposed a penalty of GBP 9,245,900 on the LME. The LME agreed to resolve the matter early and received a 30% discount. Without the discount, the penalty would have been GBP 13,208,4007. The notice found that, from January 3, 2018 to March 8, 2022, the LME's systems and controls were not adequate to ensure orderly trading under conditions of severe market stress48.

The notice lists the following facts.

  • The LME treated the price bands as a safeguard against erroneous orders and runaway algorithms.
  • The trading operations team had received no training or instructions on distinguishing a sharp move caused by intended trades from a sign of market disorder, or on escalating it to senior managers.
  • On March 8, the Hong Kong team covering overnight trading kept the price bands switched off for more than three hours, from 04:49 to 08:15.
  • Senior managers did not realize that the price bands had been switched off on the morning of March 849.

Changes at the LME

To make large OTC positions visible, the LME introduced a rule requiring weekly reporting of OTC positions, together with daily price limits50. The action plan it published on March 30, 2023 includes improving how the daily price limits are set and strengthening real-time monitoring51. The nickel market resumed trading during Asian hours in March 202352. In PS 25/1, the FCA addresses the risk that large OTC positions pose to exchange contracts50.

Notes

  1. Financial Conduct Authority (FCA), "Final Notice: The London Metal Exchange (RIE) (external site)" (March 19, 2025), paragraph 2.2. ↩

  2. Court of Appeal of England and Wales, "Elliott Associates LP & Anor, R (on the application of) v The London Metal Exchange & Anor (external site)" ([2024] EWCA Civ 1168, October 7, 2024), paragraphs 57 and 70 (quoting Notices 22/052 and 22/053). ↩ ↩2

  3. Court of Appeal judgment (external site), paragraph 72. ↩ ↩2 ↩3

  4. FCA Final Notice (external site), paragraph 4.105 (the original wording is "notional value of the cancelled trades"). ↩

  5. Court of Appeal judgment (external site), paragraph 6 (the lower court's conclusion, and the absence of an appeal by Jane Street). The lower court's decision is the judgment of the Divisional Court (external site) ([2023] EWHC 2969 (Admin), November 29, 2023). ↩ ↩2

  6. Court of Appeal judgment (external site), paragraphs 176–178 (three judges agreeing on dismissal). ↩ ↩2

  7. FCA Final Notice (external site), paragraphs 1.1 and 1.2 (the penalty, the 30% discount, and GBP 13,208,400 without the discount). ↩ ↩2

  8. Court of Appeal judgment (external site), paragraphs 10 and 11. ↩

  9. Court of Appeal judgment (external site), paragraphs 12 and 13 (LME Clear is an authorized central counterparty). ↩

  10. Court of Appeal judgment (external site), paragraphs 17–20 (contracts with clients under trading rule 2.6). ↩

  11. Court of Appeal judgment (external site), paragraphs 15 and 16. ↩

  12. Court of Appeal judgment (external site), paragraph 62. ↩

  13. Court of Appeal judgment (external site), paragraph 32 (quoting trading rule 22.1), and paragraphs 33 and 35. ↩

  14. Court of Appeal judgment (external site), paragraph 38 (it was common ground that the rule should be read as including the "exceptional circumstances" requirement of Article 48(5) of MiFID II). ↩

  15. Court of Appeal judgment (external site), paragraph 26. ↩

  16. Court of Appeal judgment (external site), paragraph 27 (initial margin, variation margin, and the members that calls fall on). ↩ ↩2

  17. Court of Appeal judgment (external site), paragraph 28. ↩

  18. Court of Appeal judgment (external site), paragraph 27 (payment deadlines). The decision whether to declare a default is from the testimony of the LME's chief executive in paragraph 63. ↩

  19. Court of Appeal judgment (external site), paragraphs 29 and 30 (quoting Articles 40 and 41 of UK EMIR). ↩

  20. Court of Appeal judgment (external site), paragraph 46. ↩

  21. Court of Appeal judgment (external site), paragraph 25. ↩

  22. Court of Appeal judgment (external site), paragraph 46 (opening price USD 27,080, closing price USD 28,919; the intraday calls were 40% above the previous record). ↩

  23. Court of Appeal judgment (external site), paragraph 47 (about five times the next largest move in the past 20 years). ↩

  24. Court of Appeal judgment (external site), paragraph 48 (about three times the previous business day; one member did not pay until the end of the day). ↩

  25. Court of Appeal judgment (external site), paragraph 50. ↩

  26. Court of Appeal judgment (external site), paragraph 51. ↩

  27. Court of Appeal judgment (external site), paragraph 55 (the 07:00 price was about USD 80,000). ↩ ↩2

  28. Court of Appeal judgment (external site), paragraph 56. ↩

  29. Court of Appeal judgment (external site), paragraph 57 (the notice gave "orderly market grounds" as the reason for the suspension). ↩

  30. Court of Appeal judgment (external site), paragraphs 61 and 62. ↩ ↩2

  31. Court of Appeal judgment (external site), paragraphs 63 and 64, and 67–69 (the reasons for rejecting Option 2; the USD 570 million estimate for Option 1B is in paragraph 69). ↩

  32. Court of Appeal judgment (external site), paragraph 66. ↩

  33. Court of Appeal judgment (external site), paragraph 68. ↩

  34. London Metal Exchange (LME), "LME Group Response to Oliver Wyman Independent Review (external site)" (Notice 23/007, January 10, 2023), paragraphs 3 and 4. ↩

  35. Executive summary of the final report attached to Notice 23/007 (external site) (pages 3 and 4; PDF pages 6 and 7). ↩ ↩2 ↩3

  36. Notice 23/007 (external site), paragraph 9 (factors a to d), combined with the description in the report's Executive summary. ↩ ↩2

  37. Glossary of the final report attached to Notice 23/007 (external site) ("Class 1 nickel", "Class 2 nickel", "Refined nickel"). ↩

  38. Court of Appeal judgment (external site), paragraph 71 ("later investigation suggested"). ↩

  39. FCA Final Notice (external site), paragraph 2.31. ↩

  40. Notice 23/007 (external site), paragraphs 8 and 13, and page 4 of the final report's Executive summary. ↩

  41. Divisional Court judgment (external site), paragraph 3. ↩

  42. Divisional Court judgment (external site), paragraph 4 (A1P1 is Article 1 of Protocol 1 to the European Convention on Human Rights). ↩

  43. Court of Appeal judgment (external site), paragraphs 126–128 and 174. ↩

  44. Court of Appeal judgment (external site), paragraphs 160, 169, 170, and 175. ↩

  45. UK Supreme Court, "Permission to Appeal - January 2025 (external site)", UKSC 2024/0153. ↩

  46. Bank of England, "Joint statement from UK Financial Regulation Authorities on London Metal Exchange and LME Clear (external site)" (April 4, 2022). ↩

  47. Bank of England, "Bank of England announces supervisory action on LME Clear (external site)" (March 3, 2023). ↩

  48. FCA Final Notice (external site), paragraph 5.2 (REC 2.5.1, paragraph 3(1) and (2)(h)). ↩

  49. FCA Final Notice (external site), paragraphs 2.7–2.8, 2.23–2.24, 2.28, and 2.30. ↩

  50. FCA Final Notice (external site), paragraph 2.31 (weekly reporting in the LME's rules, and PS 25/1). The daily price limits are in paragraph 15 of Notice 23/007 (external site). ↩ ↩2

  51. FCA Final Notice (external site), paragraph 2.32. ↩

  52. FCA Final Notice (external site), paragraph 2.3. ↩