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A group of hedge funds lost their court fight to force the London Metal Exchange to hand over transcripts of key phone calls and communications before its controversial attempt to ward off a potential “death spiral” by canceling nickel trades worth billions of dollars.
AQR Capital Management LLC and four other firms petitioned the court in September. The firms are challenging moves by the LME, which cancelled about $3.9 billion worth of trades on March 8, when futures spiked 250% in a little over 24 hours during a massive squeeze centered around a large short position held by tycoon Xiang Guangda. The LME had also suspended the market for a week.
“I am not satisfied” that the disclosure sought “would assist the dispute to be resolved without proceedings or would save costs,” judge Adrian Beltrami said in the ruling dismissing the applications by the firms. “Nor do I consider it appropriate as a matter of discretion.”
The ruling is a setback for the firms that lost a combined $95 million during the turbulent few days. AQR Capital, along with DRW Commodities LLC, Flow Traders BV, Capstone Investment Advisors LLC, and Winton Capital Management Ltd., have alleged the trades were canceled to bail out the large investor holding short positions.
The LME’s lawyers had denied the allegations and said the exchange acted to avoid systemic risks from a $20 billion margin call that could have sent the market into a “death spiral” and threatened the LME’s own survival.
“This application was misconceived from the start – the LME having already provided a detailed explanation of its decision making – and we are pleased that it has been dismissed in its entirety,” the exchange said in an emailed statement after the ruling.
A lawyer for the firms declined to immediately comment.
The LME is also facing regulatory investigations and separate lawsuits from Jane Street and Paul Singer’s Elliott Investment Management over its handling of the March nickel crisis.
(By Upmanyu Trivedi, with assistance from Jonathan Browning)
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