FCA Fines London Metal Exchange £9.2 Million for Failure to Manage Market Stress During 2022 Nickel Crisis

Key Takeaways:

• £9.2 Million Fine: The LME was fined for failing to ensure its systems and controls could handle extreme market stress, following the nickel market crisis in March 2022.
• Market Volatility Crisis: The LME’s 3-month nickel futures contract price surged to over $100,000 in just one hour, causing significant market disruptions.
• Inadequate Controls: The FCA found that the LME's systems, including its automatic volatility controls, were not sufficient to manage the rapid price movements.
• First FCA Action Against an RIE: This marks the first-ever enforcement action by the FCA against a UK-recognised investment exchange.
• Ongoing Reforms: The FCA’s penalty comes alongside broader reforms to the commodity derivatives regulatory framework, aimed at preventing similar incidents in the future.

Deep Dive

The Financial Conduct Authority (FCA) has imposed a £9.2 million fine on the London Metal Exchange (LME) for failing to ensure its systems and controls were adequate to handle severe market stress, marking the first-ever enforcement action and fine against a UK-recognised investment exchange.

The fine is the result of a series of events that unfolded between March 4 and 8, 2022, when the price of the LME’s 3-month nickel futures contract surged dramatically, reaching over $100,000—more than double the previous day’s closing price. This sudden spike, which occurred in just over an hour on the morning of March 8, resulted in significant market volatility, undermining the orderliness and confidence in the LME’s operations.

In response to the chaos, the LME suspended its nickel market for eight days and cancelled all nickel trades that had occurred on March 8. However, the FCA found that the exchange’s systems and controls were insufficient to deal with such extreme volatility, particularly in the early morning hours when trading activity was handled by less-experienced staff. These junior staff were not trained to recognize or escalate potential threats to market stability, which ultimately allowed the price to escalate unchecked.

The LME’s failure to effectively manage its automatic volatility controls, known as price bands, exacerbated the situation. The price bands were designed to mitigate extreme price movements but were disabled during the height of the volatility in a misguided attempt to manage the rising prices. Additionally, the processes for escalating unusual or hazardous market conditions to senior management were inadequate, leaving the exchange poorly equipped to address the crisis when it unfolded.

The FCA’s investigation, which was launched in March 2023, found that the LME’s breaches allowed the price of nickel futures to rise at an unsustainable pace, increasing the potential risk to investors and market users who rely on the price bands to safeguard against excessive volatility.

Steve Smart, joint executive director of enforcement and market oversight at the FCA, emphasized the importance of robust controls in such critical markets, “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.”

In recognition of the LME’s cooperation throughout the investigation, the FCA reduced the fine by 30%, from £13.2 million to the final penalty of £9.2 million. The FCA also acknowledged that the LME had taken steps to improve its controls since the incident, including reforms to its trading operations and policies.

This enforcement action highlights the growing scrutiny on trading venues and their ability to manage risks, particularly under conditions of market stress. As part of its ongoing efforts to strengthen the commodity derivatives regulatory framework, the FCA also implemented wider market reforms in February 2025.

The LME’s breach of regulations—specifically, the FCA’s Recognised Investment Exchange (RIE) rules—led to this unprecedented action against a UK-based exchange. The fine is a reminder to all market participants that regulatory authorities expect exchanges to maintain systems capable of managing extreme market conditions to ensure fairness and stability.

This case also ties into broader regulatory efforts. Alongside the enforcement action, the FCA has pushed forward with wider reforms aimed at improving the regulatory framework for commodity derivatives. Introduced in February 2025, these reforms are designed to strengthen market oversight and prevent similar incidents from occurring in the future. The FCA is determined to ensure that exchanges like the LME have the systems and controls in place to maintain market stability, even during times of extreme volatility.

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