UPDATE 3-Historic silver price benchmark bites the dust as banks pull out
* Silver fix to cease after August 14
* Deutsche Bank says postpones resignation from silver fix
* Alternatives being sought, customers surprised by its collapse
By A. Ananthalakshmi and Clara Denina
SINGAPORE/LONDON, May 14 (Reuters) - The 117-year old London silver price benchmark - or fix - will cease on Aug. 14, its operator said, as regulatory scrutiny of price-setting intensifies across markets.
The fix is set once a day by banks getting together via telephone to work out a price, based on deals between their clients. It is used by producers, consumers and investors who use it to base contracts on.
The announcement by the London Silver Market Fixing Ltd on Wednesday left a question mark over the role of a benchmark, which could be replaced an electronic alternative.
The London Bullion Market Association (LBMA) said it had launched a consultation among market participants "to try and ensure that there is something that replaces the silver fix."
"We don't have a lot of time until August 14," a spokesman said. "We will be talking to people who can help administer."
The LBMA said it will approach miners and users of the benchmarks, regulators and potential administrators requesting feedback.
Some users said they were taken aback by the silver fix loss.
"I'm a customer of the fix, and I have to say, I'm completely in the dark about this," one precious metals trader said.
Players have been investigating ways to offer a more transparent way of disseminating information throughout the gold and silver fix. Over the past few months bullion banks have been contemplating a move to electronic platforms to respond to tighter regulatory requirements.
A source close to Britain's Financial Conduct Authority (FCA) said it was pursuing frequent talks with the administrators of price benchmarks.
"You are likely to see an increased professionalization of benchmarks as an industry," the source said.
The London Metal Exchange (LME) currently distributes gold and silver forward rates on behalf of the London Bullion Market Association (LBMA).
"We are always looking at ways to expand our product offering, and are ready to expand our range of price discovery and post-trade tools to further service the precious metals market," the LME said in a statement.
DEUTSCHE POSTPONES RESIGNATION
The gold and silver fixes, along with other commodity benchmarks, has come under increasing scrutiny by regulators in Europe and the United States since the London Interbank Offered Rate (Libor) manipulation case last year.
Deutsche Bank's decision earlier this year to leave the fix process raised questions about its future as a process.
The banks are also facing lawsuits accusing them of alleged gold price manipulation.
The lawsuits have not targeted the silver fix, but in a five-year probe the U.S. Commodity Futures Trading Commission investigated allegations that some of the world's biggest bullion banks distorted silver futures prices.
After 7,000 staff hours of investigation, the regulator found no evidence of wrongdoing and dropped the probe last September.
Deutsche Bank AG, HSBC and Bank of Nova Scotia will continue to participate in the fix until the August deadline, London Silver Market Fixing Ltd said
The period until then would be used for adjustment, with consultation between clients and market participants.
Deutsche Bank's resignation in April from its gold and silver fixing seats left just HSBC and Bank of Nova Scotia to set prices.
A source familiar with the situation told Reuters that Deutsche Bank had postponed its resignation, responding to a specific request from Britain's Financial Conduct Authority (FCA).
"The other banks may have indicated to the regulator that they were looking to withdraw as well and so to make this an orderly affair Deutsche was asked to postpone the date of resignation," the source said. (Additional reporting by Jan Harvey; Editing by Veronica Brown and William Hardy)
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