UK's Financial Conduct Authority fines London Metal Exchange £9.2mln
The fine is for failing to combat severe market stress around nickel contract prices.
© vectorfusionart
Between 4-8 March 2022, the price of London Metal Exchange (LME)’s three-month nickel futures contract encountered extreme volatility, the Financial Conduct Authority (FCA) reports.
They say this culminated in the early hours of 8 March 2022 when nickel's price rose to over US$100,000, more than double the closing price on 7 March 2022, with most of the rise occurring in little over an hour.
The LME suspended its nickel market for eight days and cancelled all nickel trades that took place on 8 March.
The FCA has concluded that these events undermined the orderliness of and confidence in LME’s market.
This is the first enforcement action the FCA has taken against a UK-recognised investment exchange.
The FCA found the LME's systems and controls were not adequate to deal with severe market stress. After accepting the findings, the LME qualified for a 30% reduction in its financial penalty.
The Authority does acknowledge efforts made by the LME to enhance and strengthen controls since March 2022.
It has delivered a 'focused enforcement outcome' for this complex investigation, alongside wider market reform to the commodity derivatives regulatory framework in February 2025.
They highlight that the LME did not have adequate controls or policies relating to the operation of its automatic volatility controls, its ‘price bands’.
The Authority note decisions about market orderliness should only be taken by designated senior managers, but LME’s processes for escalating unusual or hazardous market conditions to those managers were inadequate.
It was concluded that when nickel contract price rises became increasingly extreme early on 8 March it was not escalated to senior LME managers.
They established that during LME’s ‘Asian trading’ hours, from 1am to 7am GMT, only relatively junior trading operations staff were on duty. They had not been trained to recognise anything other than error trades or rogue algorithms as potential causes of a disorderly market.
So, the trading operations staff took steps to accommodate the price rises, even disabling the price bands, during the most extreme period of volatility.
The FCA say this meant the LME’s breaches allowed the price of its three-month nickel futures contract to increase much more quickly than would otherwise have been possible. This increased the potential exposure of investors and market users to risks the price bands were designed to mitigate.
Steve Smart, joint Executive Director of Enforcement and Market Oversight at the FCA, says, 'London’s metal markets are of vital importance to the UK and global economy. We expect controls that match their significance. The LME should have been better prepared to address the serious risks posed by extreme volatility.'
