The FCA has fined the London Metal Exchange (LME) £9.2 million for failing to ensure its systems and controls were adequate to deal with severe market stress.
Between 4 and 8 March 2022, the price of LME’s 3-month nickel futures contract encountered extreme volatility. This culminated in the early hours of 8 March 2022 when its price rose to over $100,000, more than double the closing price on 7 March 2022, with most of the rise occurring in little over an hour. These events undermined the orderliness of and confidence in LME’s market.
The LME suspended its nickel market for 8 days and cancelled all nickel trades that took place on 8 March.
The LME’s systems and controls were not adequate to ensure orderly trading under conditions of severe market stress. In particular, LME did not have adequate controls or policies relating to the operation of its automatic volatility controls, its ‘price bands’.
Decisions about market orderliness could only be taken by designated senior managers, but LME’s processes for escalating unusual or hazardous market conditions to those managers 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.
The LME’s breaches allowed the price of its 3-month nickel futures contract to increase much more quickly than would otherwise have been possible. This increased the potential exposure of investors and market users to risks the price bands were designed to mitigate.
The FCA acknowledges the work undertaken by LME since March 2022 to enhance and strengthen its controls.
The FCA has delivered a focused enforcement outcome for this complex investigation, alongside the wider market reform to the commodity derivatives regulatory framework brought forward in February 2025.
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.'
This is the first enforcement action the FCA has taken against a UK recognised investment exchange.
The LME accepted the findings and so qualified for a 30% reduction in its financial penalty.
The FCA announced its investigation into LME on 3 March 2023 having considered there were exceptional circumstances to warrant doing so. This investigation was delivered significantly quicker than the average length for investigations closed in 2023/24.
Notes to editors
1. Final Notice: London Metal Exchange
2. The LME agreed to resolve the case at an early stage and qualified for a 30% discount on the penalty imposed. Without this discount the fine would have been £13.2 million.
3. See: FCA Press Release, Update on our public statement on the London Metal Exchange, 3 March 2023, updated 6 March 2023. As noted in the article, the period under consideration (the Relevant Period) was originally from 1 January 2022 to 8 March 2022. This was later extended backwards to 3 January 2018.
4. Investigations closed in 2023/24 took on average 42 months to complete.
5. The LME constitutes a Regulated Investment Exchange (RIE). The breaches by LME derive from the Recognition Requirement Regulations SI 2001/995 which have been transposed into the FCA’s rules as part of the FCA Recognised Investment Exchange and Recognised Clearing House sourcebook (REC). In addition to REC, parts of the Markets in Financial Instruments Directive II (MiFID 2) apply to exchanges and have been transposed into the FCA’s rules as Regulatory Technical Standards (RTS).
6. The LME breached REC 2.5.1 para 3(1) and 3(2)(h); and Article 18 (3)(a) and Article 18 (4) of RTS 7.
a. REC 2.5.1 para 3(1) reads: “The [UK RIE] must ensure that the systems and controls, including procedures and arrangements, used in the performance of its functions and the functions of the trading venues it operates are adequate, effective and appropriate for the scale and nature of its business.”
b. REC 2.5.1 para 3(2)(h) reads: “Sub-paragraph (1) applies in particular to systems and controls concerning…the ability to ensure orderly trading under conditions of severe market stress”.
c. 18 (3)(a) of RTS 7 reads: “Trading venues shall set out policies and arrangements in respect of… mechanisms to manage volatility in accordance with Article 19”.
d. Article 18 (4) of RTS 7 reads: “Trading venues shall make public their policies and arrangements set out in paragraphs 2 and 3. That obligation shall not apply with regard to the specific number of orders per second on pre-defined time intervals and the specific parameters of their mechanisms to manage volatility.”
7. FCA Policy Statement PS25/1: Reforming the commodity derivatives regulatory framework.