AQR leads 10 hedge funds suing LME over nickel trade debacle

AQR and DRW Commodities previously sought key documents from the exchange in court and alongside Flow Traders BV, Capstone Investment Advisors LLC and Winton Capital Management Ltd. are seeking around £80 million ($96.3 million), according to the LME.

The fresh legal action adds to troubles for the world’s biggest metals exchange flowing from its move on March 8 last year to suspend nickel trading and cancel contracts amid a runaway short squeeze. The LME has argued the action was necessary to avoid a $20 billion margin call that could have threatened the bourse’s own survival.

Pala Investments Ltd. and other funds including Commodity Asset Management LLC also filed a suit in London on Monday.

The LME said in a Hong Kong Stock Exhange filing that the AQR lawsuit is “without merit.” The statement didn’t refer to the Pala claim.

The move effectively bailed out top nickel producer Tsingshan Holding Group Co., which had positioned itself for a fall in prices, as well several LME brokers who were facing huge margin calls. On the other side of the trade were hedge funds and algorithmic investors, many of whom reacted with fury as their hugely profitable contracts were torn up.

The new claim follows judicial review proceedings brought by Elliott Investment Management and Jane Street last year. LME said in the filing in its statement that the AQR claims will be on hold pending the outcome of those.

The UK’s market regulator last week opened a rare enforcement investigation into the LME’s conduct during the crisis, in a move that could potentially lead to large fines and formal criticism. The Bank of England also said it will appoint an independent monitor to oversee an overhaul of the LME’s clearinghouse.

A year on from the squeeze, the LME nickel market remains plagued by low liquidity that’s contributing to erratic price swings and undermining confidence in its role as a global benchmark. The bourse is planning to finally reopen the market during Asian trading hours later this month, which it hopes will provide a significant boost to liquidity.

Commodity Asset Management, Pala Investments Ltd., Welton Investment Partners and Sunrise Capital Partners were all contacted for comment. Pentimon Ltd. couldn’t be reached for comment.