Could the LME cancel nickel trades without compensating the winners?

In the High Court proceedings recorded in its judgment of 29 November 2023, Elliott Associates and Jane Street challenged the London Metal Exchange’s cancellation of executed nickel trades. They argued that the exchange had acted unlawfully under its rule book and interfered with protected property rights. The cancelled transactions would otherwise have produced substantial gains for them.

The court rejected those challenges. Its answer was not that completed trades meant nothing. It was that execution did not exempt a trade from emergency powers already built into the market’s rules.

What had the exchange cancelled?

On 8 March 2022, LME nickel prices rose above $100,000 per tonne. The exchange suspended nickel trading at 08:15 London time. It subsequently cancelled nickel trades executed from 00:00 that morning until the suspension.

That distinction matters. Suspension stopped further trading. Cancellation removed transactions that participants had already entered. Elliott and Jane Street were challenging the second decision, not merely complaining that the exchange had closed the market.

The judgment, Elliott Associates LP v London Metal Exchange, [2023] EWHC 2969 (Admin), records the trading conditions, the decisions and the claimants’ objections. The LME’s notices of 8 March 2022 separately announced the suspension and cancellation. These were affirmative interventions by the exchange, not trades that failed because counterparties declined to perform.

“Completed” therefore needs care. The transactions had been executed. That does not mean the parties had completed delivery and settlement, or that the contractual framework could no longer affect them. The dispute concerned whether the exchange could undo executed transactions under that framework.

Where did the power come from?

The central provision was Trading Regulation 22, the LME’s emergency-powers rule. The High Court read that provision within the exchange’s wider rules and regulatory obligations. It held that the power extended to cancelling the disputed trades.

The authority did not arise from an improvised request that profitable traders surrender their gains. It existed in the rules under which the market operated. The legal question was whether the circumstances justified using it, and whether the LME had used it lawfully.

The statutory setting also matters. Section 285 of the Financial Services and Markets Act 2000 identifies recognised investment exchanges within the recognised-body framework. Section 290 provides the mechanism for recognition orders. The Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001 impose requirements concerning the operation of an orderly market and investor protection.

The European trading-venue framework likewise expressly contemplated retrospective intervention. Article 48(5) of Directive 2014/65/EU requires regulated markets to be able to halt or constrain trading during significant price movements. In exceptional cases, it also contemplates cancelling, varying or correcting transactions.

None of those provisions made every cancellation lawful. They do defeat the premise that an exchange’s legitimate emergency tools must end at stopping the next trade.

Was a high price enough?

No. An extraordinary price and a disorderly market are not interchangeable. A functioning market can produce an expensive result for a trader who has taken the wrong position.

The High Court examined more than the price chart. Its judgment addresses the speed of the nickel price movement, short positions, the relationship between exchange trading and over-the-counter exposures, and the potential consequences for clearing members. It also examines what LME chief executive Matthew Chamberlain knew when he acted.

The clearing problem connected the trading price to demands for cash. Rising nickel prices increased margin requirements for short positions. The exchange faced the possibility that clearing members could not meet the resulting obligations, with consequences extending beyond the traders whose positions had lost money.

The court accepted the LME’s assessment that the market had become disorderly. It also accepted that the exchange could take account of the threat to the market and clearing system when deciding how to respond.

That was not a finding that a short seller deserved protection from an adverse price. It was a finding that the exchange could address disorder and threatened defaults even when its response benefited some participants and harmed others.

Why not just stop trading?

A suspension leaves earlier transactions standing. If those transactions establish obligations that participants cannot meet, stopping the next transaction does not remove the existing problem.

That distinction supported the LME’s case for cancellation. The exchange was not simply choosing a quieter moment to reopen. It was deciding whether to preserve transactions executed during the period it regarded as disorderly, together with their financial consequences.

The claimants challenged the decision-making process and the justification for the intervention. The High Court nevertheless rejected the public-law challenges. It assessed the decision against the information and circumstances confronting the exchange, rather than substituting a trading decision made with hindsight.

The judgment did not certify every part of the LME’s preparation or market surveillance as satisfactory. The question before the court was whether the challenged decisions were unlawful. On that question, the claimants failed.

Did property rights require payment?

The compensation argument rested on more than disappointment at a lost opportunity. The claimants relied on Article 1 of Protocol 1 to the European Convention on Human Rights, incorporated through Schedule 1 to the Human Rights Act 1998. That provision protects the peaceful enjoyment of possessions.

But its text does not prohibit every interference with economic rights. It also recognises public-interest interference and the control of the use of property. The legal analysis concerns the nature of the right, the basis for the interference and whether the measure strikes a fair balance.

Here, the trading rights could not be assessed as though the exchange’s cancellation powers had never existed. The rules formed part of the legal setting in which those rights arose. The High Court rejected the property-rights challenge as well as the public-law grounds. The absence of compensation did not make this cancellation unlawful.

The Human Rights Act also distinguishes an unlawful act from the remedy for it. Section 6 establishes the prohibition on incompatible acts by public authorities. Section 8 governs judicial remedies and does not make damages automatic: they must be necessary to afford just satisfaction.

A profitable transaction therefore did not, by itself, establish a compensation claim. The claimants needed a successful legal challenge to the interference with their rights. They did not obtain one.

What did the ruling permit?

The answer here is the High Court’s answer on 29 November 2023, not an account of subsequent proceedings. It upheld a particular exercise of emergency powers against the challenges brought in that case.

That is narrower than a licence to erase any inconvenient trade. The contractual power, the finding of disorder, the clearing risks and the proportionality of the response all mattered. An exchange could not establish the same justification merely by pointing to a participant’s large loss.

The judgment’s consequence was nevertheless substantial. For these transactions, the claimants could not separate the benefit of execution from the rules permitting emergency cancellation.

Could the LME cancel without compensating traders?

Yes, on the circumstances the High Court examined in 2023. The LME had authority to cancel the March 2022 nickel trades, and its exercise of that authority survived both the public-law and property-rights challenges. The gains disappeared without a corresponding right to compensation because the transactions remained subject to lawful emergency cancellation, not because executed trades carried no rights.