The FCA launches investigation into handling of nickel short squeeze

The Financial Conduct Authority (FCA) is investigating the London Metal Exchange’s (LME) handling of a contentious short squeeze in the nickel market that occurred last year.

The FCA has opened an enforcement investigation into the LME’s “conduct and systems and controls” leading up to the trade suspension.

In March of last year, the LME cancelled trades worth approximately $3.9bn when nickel futures increased by 250% in a little over 24 hours, which effectively bailed out Tsingshan Holding Group, a top nickel producer, and alleviated pressure on brokers who faced significant margin calls.

However, this decision also sparked significant controversy when hedge funds and other traders had profitable contracts cancelled.

The Bank of England reviewed the LME’s clearing operation and recommended that the clearing unit bolster its governance arrangements, and increase management and governance independence. The LME has pledged to cooperate with the FCA’s investigation.

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