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Nickel trading on the London Metal Exchange just melted down for a third time: ‘Credibility is very quickly slipping through their fingers’

March 17, 2022, 4:24 PM UTC

The London Metal Exchange is now facing some serious credibility issues after nickel trading was halted for the third time in less than two weeks on Thursday.

The second computer glitch in as many days caused yet another shutdown for the 145-year-old metals exchange as it attempts to resume regular trading following last week’s historic short squeeze that caused prices to jump 250% in a single day to over $100,000 a ton.

This time, the halt in trading lasted only until 8:45 a.m. London time, but after Wednesday’s embarrassing series of false starts and more than a weeklong shutdown from March 8 to March 16, the LME will have its work cut out for it to restore confidence to traders in the market.

“Credibility is very quickly slipping through their fingers,” Keith Wildie, head of trading at Romco Metals, told Bloomberg. “It’s eroding very rapidly.”

Mark Thompson, executive vice chairman of the trading firm Tungsten West, had stronger words on Twitter, writing that “to cancel #Nickel trades between willing buyers and sellers is unforgivable. UNFORGIVABLE.”

Long-term confidence in the LME shaken

Nickel’s price sank 8% to $41,945 a ton on Thursday in limited trading after the LME widened its daily price change limit from the initial reopening level of 5% in hopes of assisting traders in discovering “the true market price.”

When asked how the LME can restore confidence in its exchange after its recent series of mishaps, Thompson—a 20-year veteran of nickel trading on the LME—told CNBC’s Squawk Box Asia:

“Long-term confidence in an exchange that’s canceled $3.9 billion in trades? I suspect that’s a very difficult position to be in, and I’m not sure they will ever be able to recover from this situation.”

While electronic nickel trading has been halted for several hours over the past two days, the LME was still able to operate its phone-based market and open-outcry floor, where dealers have gathered for over a century on red leather couches, barking orders over one another.

“It’s heartbreaking”

The LME clearly recognizes that continued computer glitches, trading halts, and canceled trades have led to a crisis of confidence at the exchange.

Matthew Chamberlain, the CEO of the LME, told CNBC’s Squawk Box Europe that he was focused on “making sure this never happened again” on Wednesday, just hours before issuing the third trading halt in less than two weeks.

Chamberlain added that the exchange is “absolutely mindful of the impact that this has had on so many people,” but now traders are beginning to question the credibility of the exchange and some are even packing up their bags and heading for the exit.

“The LME has been my bread and butter for a very long time, so it’s heartbreaking,” Luke Sadrian, portfolio manager of Commodities World Capital, told Bloomberg. “Given the current uncertainty, I am exiting all of my LME positions.”

Others have begun to question whether there will be contagion effects into other metals markets and if the LME has acted fairly when canceling trades.

“I don’t think there will be a contagion effect into other metal trading, but there is a long-term question around the methodology of the LME,” John Browning of the financial services firm BANDS Financial said in an interview with CNBC. “The way that the LME has acted in this crisis has created a crisis of confidence if it is seen to be fair, that it’s acting in a fair way to all parties.” 

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