LONDON, Nov 28 (Reuters) - London's High Court will rule on Wednesday whether the London Metal Exchange (LME) unlawfully cancelled billions of dollars of nickel trades in March last year, brought by two U.S.-based financial companies, staff at the court said.
Hedge fund Elliott Associates and market maker Jane Street Global Trading are claiming $472 million in compensation for the voided nickel trades on March 8, 2022, after the LME suspended trading for more than a week.
The 146-year-old exchange said it had no choice but to cancel $12 billion of nickel trades when prices of the metal used to make stainless steel lurched higher, doubling in a matter of hours to more than $100,000 per metric ton in chaotic trade.
Lawyers for the two sides presented their arguments during a court hearing over three days in June. An appeal is expected from whichever side loses.
Exchanges are nervously awaiting the outcome of the case because a loss for the LME would mean exchanges' ability to react in crisis situations could be curtailed.
But if the exchange wins, that could undermine London's status as a major global financial centre because of the potential damage to investor confidence in London markets and their governance.
The world's oldest and largest venue for trading industrial metals said it annulled the nickel trades because numerous metal trading firms would have defaulted, sending a "death spiral" of contagion throughout the financial system.
Documents and witness statements have revealed what many regard as sluggish reaction to the nickel price eruption in the weeks leading up to the crisis.
Lawyers for Elliott argued that the LME failed to investigate a large nickel position held by China's Tsingshan Holding Group, even though the exchange investigated a previous incident in which the Chinese company wielded a large position in 2019.
Court documents show that several institutions were alarmed on March 7 and at least one urged LME Chief Executive Matthew Chamberlain to suspend the market or impose price caps.
Even though the nickel price rocketed 85% to a peak of $55,000 a metric ton and one member had failed to pay a huge margin call on March 7, an LME special committee meeting at the end of the day decided the market was still "orderly".
The LME is owned by Hong Kong Exchanges and Clearing Ltd. (Reporting by Eric Onstad Editing by David Goodman)