By Polina Devitt
LONDON (Reuters) – The London Metal Exchange’s clearing house questioned the size of the damage claim brought by Elliott Associates and Jane Street Global Trading over losses from cancelled nickel trades, court documents show.
U.S.-based hedge fund Elliott and market maker Jane Street are demanding damages of $456.4 million and $15.3 million respectively in a three-day judicial review ending on Thursday in a London court.
They have accused the LME of unlawfully cancelling nickel trades on March 8, 2022, after the price of the stainless steel material doubled in a matter of hours to a record above $100,000 a metric ton in chaotic trade.
The 146-year-old LME argues it was justified in closing the market and cancelling trades because $19.7 billion of margin calls would otherwise have led to the defaults of clearing members and created systemic risk.
James Cressy, acting CEO at LME Clear, suggested that both firms had opportunities to reduce the losses they claim to have suffered in his witness statement where he analysed the methodologies used to calculate the sum.
According to Cressy, it was possible to replicate the effect of the March 8, 2022 trades and mitigate alleged losses on the over-the-counter market, on the Shanghai Futures Exchange or by taking positions in exchange-traded funds.
Elliott’s commodities portfolio manager, Tom Houlbrook said in his witness statement that none of these options were viable alternatives for Elliott.
From September 2021, he said, Elliott bought call options, giving it the right to buy nickel deliverable in June and September 2022, at a price ranging between $23,000 and $27,000 per metric ton.
Elliott expected to profit by selling the nickel it could acquire at a higher price than that agreed in the options, Houlbrook added.
In early hours of March 8, 2022 Elliott sold a number of future contracts for 9,660 metric tons of nickel deliverable in June and September 2022 at between $52,000 and $80,465 per metric ton through three brokers – Goldman Sachs, Sigma Broking and JP Morgan Securities.
Under these trades, Elliott would have received gross proceeds of $728 million.
“As a result of the cancellation decision, the claimants have been deprived of the 8 March Proceeds,” Houlbrook said, adding that he understood that the methodology for the quantification of the loss suffered was a matter for legal submissions.
If Elliott had replicated the March 8 trades on March 22, when the nickel market was back open, it would have received $272 million, which is $456 million less than the March 8 deals, Houlbrook added.
Cressy said the choice of the March 22 price as a reference point has consequences for the extent of the losses being claimed as the March 22 price was lower than the one in the following weeks.
(Reporting by Polina Devitt; editing by David Evans)
