The Financial Conduct Authority handed a landmark £9.2m fine to the London Metal Exchange after it failed to prevent extreme volatility in the nickel market in March 2022.

In its first ever enforcement action against an investment exchange, the FCA criticised the exchange’s systems and controls that did not ensure “orderly trading under conditions of severe market stress”.

The London Metal Exchange decided to scrap billions in nickel trades in March 2022, after fears around the Russian invasion of Ukraine sent metal prices rocketing.

Prices more than doubled during the morning of 8 March 2022 to over $100,000 (£77,000), with most of the rise occurring in just an hour.

“These events undermined the orderliness of and confidence in the London Metal Exchange’s market,” said the watchdog, adding that the exchange’s processes for escalating unusual or hazardous market conditions to managers “were inadequate”.

During the exchange’s Asian trading hours, from 1am to 7am in the UK, only “relatively junior trading operations staff” were on duty, the FCA said, who had not been trained to recognise all 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,” it added.

Instead, trading operations staff at the exchange actually worked to accommodate the price rises, including through disabling the price bands during the most extreme period of volatility.  

Following the market’s morning session, the exchange suspended nickel trading for eight days and later published a notice cancelling all nickel trades entered into on that day before the suspension.