LME had regulatory obligation to be able to cancel nickel trades in March -filings

  • LME says cancelling March nickel trades only option -filings
  • Had regulatory obligation to be able to cancel trades
  • Elliott, Jane Street complaint without merit - filings

LONDON, Nov 28 (Reuters) - The London Metal Exchange (LME), battling a combined $472 million lawsuit from U.S. hedge funds Elliott Associates and Jane Street Global Trading, had a regulatory obligation to be able to cancel nickel trades in March, it said in court filings.

Nickel prices on the world's oldest and largest exchange more than doubled in a matter of hours to top a record $100,000 a tonne on March 8, when the exchange suspended the market and annulled billions of dollars worth of nickel trades.

The LME said that decision was taken during unprecedented market conditions, that it had been its only appropriate option - and that subsequent analysis had reinforced that rationale, court documents filed on Monday showed.

"The LME maintains that Elliott's and Jane Street's grounds for complaint have no merit and are based on a fundamental misunderstanding of the situation on 8 March and the decisions taken by the LME," a LME spokesperson said.

"All the actions taken on 8 March were lawful and made in the interest of the market as a whole. The LME will continue to vigorously defend these proceedings."

Elliott Associates and Jane Street declined to comment.

The two groups have alleged the LME acted unlawfully, breached its published policies, was disproportionate, favoured some market participants over others and violated their rights under the European Convention of Human Rights to the "peaceful enjoyment" of possessions.

But the exchange counters that its rulebook gave it clear and specific power to suspend the market and cancel existing trades.

SYSTEMIC RISK

The LME said it now knows that large over the counter positions held by various parties "materially contributed to the disorder".

"This was not known to the LME at the time and the interests of any of those parties formed no part of the LME's motivation for its decisions," it said in the filings.

When the LME suspended the nickel market, it also told the market it was considering cancelling trades, the filings said, but neither claimant objected.

Other options were considered. LME executives called their counterparts at clearing house LME Clear to discuss options including allowing the March trades to stand - or calculating margins using Monday's closing price.

The second option would have left LME Clear "significantly under collateralised in breach of its regulatory obligations" and the view of management was that it was highly likely some members would default and create systemic risk," the exchange alleged in the filings.

Elliott and Jane Street are not the only firms to have bristled after nickel trades were cancelled in the wake of a runaway short squeeze - AQR Capital Management and four other parties have also filed legal action.

Reporting by Pratima Desai and Kirstin Ridley; Editing by Jan Harvey, Bernadette Baum and David Evans

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