Maybe the LME only disturbs the human rights of the most sympathetic figures?
In 2014, the commodities exchange won a case against Rusal, then controlled by oligarch Oleg Deripaska, who challenged a change in rules governing the movement of metal in and out of the exchange’s warehouses. . The point is that the LME did not properly negotiate these changes, which harmed Rusal’s economic interests (and violated his human rights).
Now, the 145-year-old exchange is the subject of two similar lawsuits from activist hedge fund Elliott Management. The judicial review contends that the exchange’s cancellation of nickel trading in March was illegal after prices surged 250 percent.
The LME angered some market participants by first suspending nickel trading on March 8 and then cancelling it, effectively resetting the market to where it last believed the contract was trading in an “orderly” manner. Given the three-month deadline for filing claims for judicial review, other lawsuits may be brought by those who have suffered losses.
According to a brief by LME owner HKEX, the lawsuit is “baseless” and the LME will “vigorously defend” it, with Elliott also claiming the exchange’s actions “constituted a violation of the claimant’s human rights.”
The admittedly interesting idea of violating the human rights of activist hedge funds is not as absurd as it sounds. The so-called A1P1 claims concern the right of natural or legal persons to “peacefully enjoy their property”. They are often hampered by other arguments because they are seen as an easier route to damages. (The Rusal case was ultimately decided on other grounds.)
Elliott, known for chasing the last penny in a long-running dispute, is claiming $456 million over the LME’s decision to deprive it of “property” or what it gained from sales agreements it struck on the market income. That’s roughly equivalent to selling about 9,000 tonnes of nickel at the reset market price, rather than approaching the peak of more than $100,000.
The essence of Elliott’s argument is that the LME overstepped its authority to cancel the deal, or that it exercised those powers “unreasonably and unreasonably”. This could be a concern about the LME’s slow decision-making as the market surged on March 7-8, or a concern that the LME favored some players over others, including Chinese firms backing massive off-market shorts prompting the squeeze s position. Some market sources say the LME has broad discretion in its rulebook to act in such situations.
It’s a market torn apart at the best of times by disparate interests. The backdrop of the Elliott lawsuit is a renewed push to modernize a now hopelessly odd market, where vested interests have previously resisted the types of disclosures and restrictions that could help in the situation. Hedge fund lawsuits have added pressure to reform.
Large financial players such as Citadel, whose founder Ken Griffin called the exchange’s decision “incomprehensibly wrong” last week, have long been frustrated by its quirks compared to other futures markets. Large commodity banks are allowed to block greater transparency while profiting from the status quo. Smaller physical traders and members, some of whom were previously opposed to the reforms, now appear to admit that safeguards are necessary. They may now find themselves in a battle to keep the venue’s emphasis on bartering and hedging, as well as the specificity that is valued by the miners and companies that use it.
Three months after the incident, with nickel prices rising, reports of China missing a margin call, and the LME’s belated intervention, it’s still very unclear who knows when this happened. Britain’s financial regulator, seemingly AWOL when it mattered, has “scrutinized” a crisis that is sure to hit the market’s reputation in terms of winning user confidence, if not worse.
Elliott’s actions mean that this saga can come to an end as soon as possible. This may not be a bad thing.