Elliott, a hedge firm, has filed a lawsuit against the London Metal Exchange

Elliott, a hedge firm, has filed a lawsuit against the London Metal Exchange

Elliott Management Corp., an activist hedge fund manager, sued the London Commodity Exchange for more than $456 million after the exchange paused nickel trading and invalidated some contracts earlier this year due to extreme price swings in the metal.

According to Hong Kong Exchanges & Clearing Ltd. 388 1.64 percent, which owns LME, Elliott is disputing the exchange’s decision to delete trades that it claims it conducted early on March 8.

The case is a new burden for the LME, whose conduct had already provoked an investigation by British financial regulators after receiving criticism from some market participants.

“The LME management is of the view that the claim is without merit and the LME will contest it vigorously,” HKEX said Monday.

The hedge-fund firm, founded by billionaire Paul Singer, argues the metal exchange’s action “was unlawful on public law grounds and/or constituted a violation of the claimants’ human rights,” HKEX said. Elliott has brought the case in the English High Court through two vehicles, Elliott Associates LP and Elliott International LP. The claim is being pursued as a judicial review, a proceeding in which a judge assesses the legality of a decision or action taken by a public body.

An Elliott spokesperson confirmed that the firm started legal proceedings against the LME. By canceling trades, the LME either exceeded its authority or was acting “unreasonably and irrationally,” the spokesperson said.

Russia’s invasion of Ukraine sparked sharp gains in many commodities. The nickel market proved particularly turbulent because the price moves upended a massive trade against the metal by Tsingshan Holding Group, a Chinese nickel producer.

The LME stopped nickel trading early on March 8 and retrospectively canceled trades in the eight hours before the suspension. It was the first time the LME had frozen trading for a metal since the collapse of an international tin cartel in 1985 and the 145-year-old exchange came under criticism from traders for the way it handled the crisis.

The LME’s decision to cancel trades roiled hedge funds that felt the exchange violated a solemn rule that trades should never be canceled. Elliott is likely to be joined by other market players in targeting the LME with legal action. “There are a lot of eyes on this case. There are a lot of investors out there who will be interested in putting a claim forward. Trading on that day was sizable,” said Ashraf El-Ansary, managing partner at Principa Capital, a London-based macro hedge fund.

Principa stopped trading on the LME after the exchange canceled its nickel trades in March, he said. U.K. financial regulators in April launched a review into the breakdown in nickel trading. The Financial Conduct Authority and the Bank of England said they would look for ways that the LME can improve its governance, market oversight and risk management.

In late April, the exchange’s parent said LME Chief Executive Matthew Chamberlain would remain in his position, reversing an earlier plan to depart. HKEX shares rose 1.6% Monday in Hong Kong, underperforming a 2.7% increase for the Hang Seng Index.

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