Between 4 and 8 March 2022, the price of LME’s 3-month nickel futures contract encountered extreme volatility. This culminated in the early hours of 8 March 2022 when its price rose to over $100,000, more than double the closing price on 7 March 2022, with most of the rise occurring in little over an hour. These events undermined the orderliness of and confidence in LME’s market.
The LME suspended its nickel market for 8 days and cancelled all nickel trades that took place on 8 March. The LME’s systems and controls were not adequate to ensure orderly trading under conditions of severe market stress. In particular, LME did not have adequate controls or policies relating to the operation of its automatic volatility controls, its ‘price bands’.
Decisions about market orderliness could only be taken by designated senior managers, but LME’s processes for escalating unusual or hazardous market conditions to those managers were inadequate.
During LME’s ‘Asian trading’ hours, from 1am to 7am GMT, only relatively junior trading operations staff were on duty. They had not been trained to recognise anything other than error trades or rogue algorithms as potential causes of a disorderly market. This meant that when price rises in the nickel contract became increasingly extreme during the early hours of 8 March it was not escalated to senior LME managers. Instead, trading operations staff took steps to accommodate the price rises, even disabling the price bands, during the most extreme period of volatility.
The LME’s breaches allowed the price of its 3-month nickel futures contract to increase much more quickly than would otherwise have been possible. This increased the potential exposure of investors and market users to risks the price bands were designed to mitigate. The FCA acknowledges the work undertaken by LME since March 2022 to enhance and strengthen its controls.
The FCA has delivered a focused enforcement outcome for this complex investigation, alongside wider market reform to the commodity derivatives regulatory framework brought forward in February 2025.
Steve Smart, joint executive director of enforcement and market oversight, FCA said: "London’s metal markets are of vital importance to the UK and global economy. We expect controls that match their significance. The LME should have been better prepared to address the serious risks posed by extreme volatility."
This is the first enforcement action the FCA has taken against a UK recognised investment exchange. The LME accepted the findings so qualified for a 30% reduction in its financial penalty. The FCA announced its investigation into LME on 3 March 2023 having considered there were exceptional circumstances to warrant doing so. This investigation was delivered significantly quicker than the average length for investigations closed in 2023/24.
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