London Metal Exchange (LME) Fine - £9,245,900 - FCA - March 2025

Quick facts

• Amount: £9,245,900 (after a 30% discount for early settlement). The original penalty would have been £13,208,400.
• Date: 19-Mar-25
• Violations: Failure to have adequate systems and controls in place to ensure orderly trading, particularly under conditions of severe market stress, and breaches related to its volatility control mechanisms (price bands).
• Violation Period: 3-Jan-2018, through 8-Mar-2022

London Metal Exchange Fine Overview

The Financial Conduct Authority (FCA) has imposed a financial penalty on the London Metal Exchange (LME) for failing to maintain orderly markets and for deficiencies in its systems and controls, particularly concerning its price band mechanisms.

These failings became apparent during a period of extreme volatility in the nickel market in March 2022. The LME's 3-month nickel contract price more than trebled between March 4 and March 8, 2022, severely disrupting the market and threatening multiple LME Members with default.

The FCA found that the LME's policies, controls, and training programmes had not sufficiently catered for the risks to market orderliness presented by such extreme volatility during the period of January 3, 2018, to March 8, 2022.

Details of the London Metal Exchange Fine

Between Friday, March 4, and Tuesday, March 8, 2022, the LME's 3-month nickel contract price surged dramatically. By the morning of March 7, the 3M nickel contract had increased by 28% since the market opened, rising from just under $30,000 to $37,000. By the close of LMEselect on March 7, the price had reached $50,300, a more than 65% increase since trading opened that day.

The LME had automatic volatility controls intended to mitigate market disruption from sudden significant price movements. However, the LME's focus when operating these price bands was primarily on error trades rather than broader market stress from "genuine" trades.

On March 7, 2022, as nickel prices surged, the Hong Kong Trading Operations (TO) team repeatedly widened the static price band for nickel, from $2,350 to $6,000, far beyond its original design. Later that day, the London TO team suspended and reapplied the nickel price bands multiple times. Crucially, in the early hours of March 8, 2022, with prices continuing to escalate, the Hong Kong TO team suspended the price bands altogether around 4:49 am. This left the market without automated protection against extreme volatility for over three hours. In the 55 minutes after the price bands were suspended, the price rose from $60,000 to $70,000. Then, between 5:44 am and 6:08 am (24 minutes), it surged from $70,000 to $101,365.

The Hong Kong TO team, responsible for overnight monitoring, was not briefed on senior management's concerns about the escalating prices on March 7 and was not instructed to contact senior managers if prices continued to rise overnight. They proceeded to suspend the price bands without senior management oversight, believing it was part of aiding price discovery.

The escalating crisis led the LME to suspend its nickel market at 8:15 am on March 8, 2022, on "orderly market grounds". Later that day, all nickel trades executed on or after midnight UK time on March 8 were cancelled, as they were deemed to have occurred in a disorderly market. The notional value of these cancelled trades was $13.373bn.

Post-event, the LME was unable for several months to provide accurate and complete information to the FCA regarding the operation and calibration of its price bands on March 7 and 8, and related decisions. The LME did not inform the FCA for over two months that its price bands had been suspended on March 8

Select Quotes

• “Had margin calls been made based on the £80,000 figure, they would have totalled some $20 bn and been likely to trigger multiple LME Member defaults.”
• "Between 3 January 2018 and 8 March 2022 (the Relevant Period), the LME's policies, controls and training programme had not sufficiently catered for the risks to market orderliness presented by extreme volatility."
• "LME failed to articulate to staff responsible for operating the price bands (including when that message was most needed during the events of 7 and 8 March 2022) that the price bands formed part of its controls more broadly to ensure orderly trading under conditions of severe market stress, and that this included 'genuine' trades insofar as, in adverse conditions, such trades could cause sudden movements in price and undermine the orderliness of the market."
• "The operation of the price bands was suspended continuously for more than three hours from 4.49am to 8.15am. This meant that the LME's only automated volatility control mechanisms were of no effect during a time of extreme market conditions, and on the basis of a decision made by junior staff without any oversight from senior management."

Sources

• FCA - Final Notice
• FCA - Press Release - First FCA enforcement action and fine against a Recognised Investment Exchange