Elliott Associates, an American investment management firm, sued London Metal Exchange (LME) for US$456mln after nickel trades were suspended and cancelled on the platform owned by Hong Kong Exchanges and Clearing Ltd.
Fund manager Elliott Associates and Elliott International filed a judicial review lawsuit against LME and LME Clear Limited in early June, according to a statement from LME's parent HKEX.
The activist investor's move adds to the pressure on the LME, which was widely criticised for halting trading and canceling bets on the nickel market.
A review of the LME is also being conducted by UK regulators after billions of dollars of transactions were undone and trading halted for over a week.
In the filing, the hedge fund challenged LME's decision to cancel its trades in nickel contracts on or after March 8.
A spike in nickel prices to more than US$100,000 a tonne within hours led the LME to suspend activity and cancel nickel trades on March 8, with trades disrupted by several technical glitches after they resumed.
Elliot Associates says the trade cancellation was "unlawful on public law grounds" and a violation of its rights, according to the filing.
LME denied the claim in a statement, HKEX said, adding, "The LME management is of the view that the claim is without merit and the LME will contest it vigorously," reports Reuters.
The exchange issued over US$7bn in margin calls in March as nickel prices spiked, nearly four times the previous record, with LME saying trading was halted in the interest of the market as a whole.
Among the critics of the LME are Goldman Sachs (NYSE:GS) and Tower Research Capital, one of Wall Street's oldest electronic market-makers, which reined in its trading activity and put its LME membership under review.
European regulators have placed the LME under the scanner after the nickel trading debacle, prompting regulators and participants in the commodities market to demand more scrutiny.