Hundreds of pages of legal filings describe how the LME sleepwalked into a crisis, "that the LME was largely in the dark about Tsingshan's role as the major driver of the price spike until after it had decided to cancel billions of dollars of nickel trades; that the exchange's top decision makers were asleep as the market spiraled out of control; and that Chamberlain made the key decision that the market was disorderly in about 20 minutes after he woke up on March 8 – unaware until much later that the LME's staff had allowed prices to move more rapidly by disabling its own automatic volatility controls."
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Jane Street alleges the very fact that the LME's key decision makers were asleep was a breach of the exchange's regulatory duties, since it meant that "no-one had been monitoring transactions in order to assess whether there were disorderly trading conditions." The LME disputes that it was in breach.
What oversight there was came from the exchange's trading operations team. They were in charge of operating the LME's price bands, a form of speed bump designed to limit extreme price moves, such as in the case of "fat finger" trades.
But in the early hours of March 8, the operations team received numerous complaints from market participants that the price bands were preventing them from booking trades. At 4:49 a.m., they suspended them altogether.
Dizzying Ascent
It was soon after this that nickel prices started the most dizzying part of their ascent. By the time Chamberlain woke up, at 5:30 a.m., the price was already $60,000 a ton. In the next 38 minutes, it rose another $40,000.
"The abandonment of price bands caused or at least materially contributed to the speed and scale of the increase in prices," Jane Street said in its court filing. "Without price bands in place, the LME could not control price volatility at all."
Chamberlain wasn't aware that his operations team had suspended the price bands, as he made his pivotal decision to suspend the nickel market.
The exchange still didn't have a handle on the scale or the importance of Tsingshan's position — the real reason behind the runaway rally.
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Brokers on the LME would normally need to pay their first margin call of the day by 9 a.m., based on prices prevailing at around 7 a.m. If that had happened on March 8, the LME would have needed to request $19.75 billion from 28 banks and brokers – an unprecedented sum that was more than 10 times the previous daily record before March 2022.
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