The Financial Conduct Authority has issued a Final Notice fining the London Metal Exchange (LME) GBP 9.2 million for failing to ensure its systems and controls were adequate to maintain orderly trading under severe market stress, following extreme volatility in LME’s three-month nickel futures in March 2022. The FCA concluded that weaknesses in the operation and escalation of the exchange’s automatic volatility controls contributed to disorderly conditions that led LME to suspend nickel trading for eight days and cancel all nickel trades executed on 8 March 2022. Between 4 and 8 March 2022 the nickel contract price rose to over USD 100,000 in the early hours of 8 March, more than double the 7 March close, with most of the move occurring in little over an hour. LME lacked adequate policies and controls for its ‘price bands’ and had insufficient processes to escalate unusual or hazardous market conditions to designated senior managers. During 1am to 7am GMT ‘Asian trading’ hours, junior operations staff were not trained to identify potential causes of disorderly markets beyond error trades or rogue algorithms, and they did not escalate the accelerating price moves, instead taking steps to accommodate them including disabling the price bands. The FCA found these breaches of the FCA Recognised Investment Exchange and Recognised Clearing House sourcebook (REC) and RTS 7 allowed prices to rise more quickly than would otherwise have been possible, increasing exposure to risks the bands were designed to mitigate. LME accepted the findings and qualified for a 30% early settlement discount, reducing the penalty from GBP 13.2 million. The action is the FCA’s first enforcement case against a UK recognised investment exchange and follows the FCA’s March 2023 announcement of the investigation, which was later expanded to cover conduct back to 3 January 2018, and completed significantly quicker than the 42-month average for investigations closed in 2023/24.
Financial Conduct Authority 2025-03-19
Financial Conduct Authority fines London Metal Exchange GBP 9.2 million over failed volatility controls during 2022 nickel turmoil
The Financial Conduct Authority fined the London Metal Exchange (LME) GBP 9.2 million for inadequate systems during severe market stress in March 2022, leading to disorderly trading. LME's failure to manage automatic volatility controls caused an eight-day suspension of nickel trading and trade cancellations on 8 March 2022. LME accepted the findings and received a 30% early settlement discount, marking the FCA's first enforcement case against a UK recognised investment exchange.