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Behind the Nickel Mess on the London Metal Exchange

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Metal Mayhem: Nickel Plunges by 8% Daily Limit
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Securities exchanges sometimes halt trading or very occasionally cancel transactions when technology glitches or “fat finger” errors cause one-off mistakes. But it’s rare for one to cancel whole sessions after the fact, or to take days to allow trading to resume freely. Yet that’s what happened with one of finance’s oldest institutions, the London Metal Exchange, or LME. Russia’s invasion of Ukraine sparked a period of chaos in the nickel market, exposing the vulnerabilities of the exchange. The incident sparked a push for more transparency in one of the darkest corners of the financial markets.

It sets global reference prices for critical metals such as copper and aluminum, trading about $60 billion in futures contracts daily, or more than half of the world total. History dates it back to the early 19th century, when traders gathered around a circle drawn in the sawdust on the floor of the Jerusalem Coffee House in the City of London. Today, in addition to its electronic market, the LME is one of the last exchanges with an open-outcry trading floor, known as “the Ring,” where brokers yell orders at one another. It brings together mining companies, which use the LME to offset price risks, and hedge funds, which use it to speculate. Contracts are backed by physical metal kept in a network of LME warehouses around the world, which maintains a direct link with the real-world industry. In 2012, the LME was purchased by Hong Kong Exchanges and Clearing Ltd.