Hedge fund AQR demands British judge force LME to hand over transcripts

LONDON, Dec 16 (Reuters) – Hedge fund AQR Capital Management and four others asked a British judge on Friday to force the London Metal Exchange (LME) to hand over phone call transcripts and meeting notes about the LME’s March decision to cancel trades.

AQR and others filed legal action in September after a wild price spike in nickel spurred the LME to cancel deals worth billions of dollars, which they said led to “significant losses” for market participants.

Paul McGrath, a lawyer for the group led by AQR, said it was difficult to understand why his clients could not obtain documents which would further explain the LME’s conduct.

He said their request would possibly uncover whether a relationship between billionaire Xiang Guangda and his Tsingshan Holding Group (THG) and the Hong Kong Exchange (0388.HK), the LME’s owner, had anything to do with the decision to halt trading.

“At heart of our interest is whether certain market participants were favoured over other certain market participants – as opposed to just restoring market order,” he said.

THG, one of the world’s top nickel producers, faced massive losses on its short positions after prices soared to more than $100,000 per tonne on March 8 and trading was halted.

“There’s a lot of smoke here that justifies real concerns that a decision may have been taken in circumstances that give rise to bad faith.”

James McClelland, lawyer for the LME, said this was misleading. He referred to a 7,000-word explanation the LME had already provided as to why trading in nickel had been halted.

Chiefly among the reasons, he said, was to prevent a “Lehman-like event” in which many participants would face defaults, and to preserve market order, referring to the U.S. investment bank that collapsed during the global financial crisis in 2008.

“They seek to go behind the information that has been provided,” McClelland said. “They want to know the explanation is false and go on a fishing expedition to establish that.”

Justice Adrian Beltrami paused proceedings to consider the arguments before determining his decision. Kirkland and Ellis worked as the law firm for AQR and others, while Hogan Lovells represented the LME.

The other claimants in the filing at the London Commercial Court were Winton Capital Management, Capstone Investment Advisors, Flow Traders (FLOW.AS) and DRW Commodities.

The LME is also facing lawsuits from U.S. hedge fund Elliott Associates and Jane Street Global Trading, which are suing the LME for $456 million and $15.3 million, respectively, for the cancelled nickel trades.

Reporting by Eric Onstad and Nell Mackenzie in London Editing by Matthew Lewis and Paul Simao