The UK markets watchdog opened an investigation into the London Metal Exchange focusing on potential misconduct during last year’s massive nickel short squeeze, escalating pressure on the embattled exchange and raising the prospect of financial penalties.
The probe by the Financial Conduct Authority’s enforcement division is the first public action of its kind targeting a UK exchange, and will focus on the LME’s actions, systems and controls in the run-up to the suspension of the nickel market a year ago. The Bank of England, which regulates the LME’s clearinghouse, said separately that its governance and risk management must be improved, and that it plans to appoint an independent monitor.
Nickel prices spiked 250% in a little more than 24 hours last March in a short squeeze centered on top producer Tsingshan Holding Group Co., prompting the LME to halt the market for a week and, most controversially, cancel billions of dollars of trades at the highest prices.
The FCA said on Friday that its new enforcement investigation will cover the period between Jan. 1 and the suspension of trading on March 8, suggesting the subsequent decision to tear up the trades may fall out of the scope of the probe. The regulator said it will not comment on the matter further, but it states on its website that it begins enforcement investigations “where we have reason to believe serious misconduct may have taken place.”
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