The UK regulator issued its first ever fine against an investment exchange after sanctioning the LME for its role in the nickel market chaos which it oversaw in 2022.
The Financial Conduct Authority (FCA) has sanctioned the London Metal Exchange (LME), issuing a fine of £9.2 million for its chaotic handling of the nickel market crisis in 2022. It marks the first time the UK regulator has formally penalised a top investment exchange.
Between 4 and 8 March 2022, the price of the LME’s three-month nickel futures contract encountered extreme volatility. In just over an hour on the morning of 8 March, the price rose to over $100,000, more than double the closing price on 7 March 2022.
LME’s inability to deal with severe market stress was due to its inadequate systems and controls. In particular, it did not have sufficient controls or policies relating to the operation of its automatic volatility controls, known as ‘price bands’. This in turn undermined confidence in LME’s market, leading to extreme volatility and unprecedented market disruption.
The LME’s breaches allowed the price of its 3-month nickel futures contract to increase much quicker than would otherwise have been possible. As a result, this increased the potential exposure of investors and market users to risks the price bands were designed to mitigate.
What is the London Metal Exchange?
The London Metal Exchange is the world’s leading marketplace for trading commodities and dealing in metal futures contracts. First established in 1877, it is the international centre for industrial metals pricing, hedging, and trading.
LME can trace its history back to early metals and commodities trading at the Royal Exchange, which opened in London all the way back in 1571. For more than a decade, the LME has been owned by the Hong Kong Exchanges and Clearing, who purchased it in 2012.
Why did the London Metal Exchange get fined?
The FCA found that the LME’s systems and controls were not adequate enough to ensure orderly trading under conditions of severe market stress. Only designated senior managers could decide on market orderliness, but LME’s escalation processes were inadequate.
During LME’s ‘Asian trading’ hours, from 1am to 7am GMT, only relatively junior trading operations staff were on duty. They had not been trained to recognise anything other than error trades or rogue algorithms as potential causes of a disorderly market.
This meant that when price rises in the nickel contract became increasingly extreme during the early hours of 8 March it was not escalated to senior LME managers. Instead, trading operations staff took steps to accommodate the price rises, even disabling the price bands, during the most extreme period of volatility.
How much was the FCA fine?
The LME was fined a total of £9.2 million for its part in the nickel market fiasco. Because the company agreed to resolve the case at an early stage, it qualified for a 30% discount on the final penalty imposed. Without this discount the fine would have amounted to £13.2 million.
What action did the London Metal Exchange take?
In the immediate aftermath of the crisis, the LME suspended its nickel market for 8 days and cancelled all nickel trades that took place on 8 March. In the months that followed, the FCA acknowledged the work undertaken by LME since March 2022 to enhance and strengthen its controls.
The regulator has maintained a targeted approach throughout the process of what is a complex investigation, in parallel with broader market reforms introduced under the commodity derivatives regulatory framework in February 2025.
Responding to the sanction, Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “London’s metal markets are of vital importance to the UK and global economy. We expect controls that match their significance. The LME should have been better prepared to address the serious risks posed by extreme volatility.”
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