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LME executives “had never previously witnessed such extreme price convulsions”, and there wasn’t an “explicable” market force driving the surge, the exchange told London’s Administrative Court in its filing.

“In the LME’s expert view the market had become disorderly,” it said.

Had the LME not cancelled trades on 8 March, it added, it would have resulted in a “record-breaking” margin call of nearly $20bn, 10 times the previous record set just four days earlier on 4 March.

Such a margin call would have pushed “multiple market participants into simultaneous default”, leading to negative effects for “real-world” users of the nickel, the filing added.

READ The LME’s tumultuous three months — here’s what happened

The nickel price surge was caused by a short squeeze stemming from a position held by Chinese stainless steel manufacturer Tsingshan. Elliott and Jane Street have argued the cancellation of nickel trades had unevenly benefitted Tsingshan and other short contract holders.

The LME rejected those claims in its legal defence.

“The claimants are simply wrong to suggest that the LME was motivated to protect Tsingshan or others in its position,” it said. “[LME chief executive] Matthew Chamberlain reasonably considered that he did not need to isolate the cause of the disorder in order to determine that the market was disorderly or to determine the appropriate response.”

The two firms also argued that the LME overstepped its authority when it cancelled trades, and the rollback of $4bn in trading is unprecedented. The exchange, however, cited the LME rulebook, which gives it the ability to “cancel, vary or correct” trades “where the exchange considers it appropriate”.

A spokesperson for the LME said the filings, “set out the full details on its decision-making and explain the significant consequences that would have arisen for the entire market if it had not taken the action that it did”.

“The LME maintains that Elliott’s and Jane Street’s grounds for complaint have no merit and are based on a fundamental misunderstanding of the situation on 8 March and the decisions taken by the LME. All the actions taken on 8 March were lawful and made in the interest of the market as a whole. The LME will continue to vigorously defend these proceedings,” the spokesperson added.

Elliott and Jane Street were granted permission to proceed with the lawsuit last month by the UK High Court. Elliott has been approached for comment. Jane Street declined to comment.

Other firms who were impacted by the nickel cancellations will be closely watching the proceedings. LME market participants including AQR Capital, DRW Commodities and Flow Traders filed a pre-action disclosure request against the exchange back in September. The request itself does not necessarily lead to lawsuit.

To contact the author of this story with feedback or news, email Jeremy Chan