UPDATE 1-CME Group throws down gauntlet in race to run gold fix

Thu Jul 17, 2014 9:06am EDT

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By Clara Denina and Jan Harvey

LONDON, July 17 (Reuters) - The Chicago Mercantile Exchange (CME) said on Thursday it would be happy to administer, with Thomson Reuters, the global price benchmark for gold known as the "fix", a day after banks effectively called time on the current arrangement.

The century-old gold fix is a standard price for the metal that banks set twice a day over the telephone. It is based on transactions between their clients such as central banks and mining companies.

Regulators have focused on the precious metal benchmarks since the Libor interest rate-rigging scandal broke in 2012. Some observers say the system for pricing the metals leaves it equally vulnerable to manipulation.

An official at Britain's Financial Conduct Authority told lawmakers this month that collusion among banks in setting the gold benchmark was possible, although there was no proof for now that it was happening.

The watchdog has studied the gold fix and fined Barclays 26 million pounds for failures in internal controls that allowed a gold options trader to manipulate the setting of gold prices.

London Gold Market Fixing Ltd, the company working on behalf of gold fixing banks Barclays, HSBC <HSBA.L,> Societe Generale and Bank of Nova Scotia, said it would ask for proposals so it could appoint a new administrator for the benchmark.

CME managing director of metals products Harriet Hunnable was first out of the blocks, saying the exchange would bid to be involved in a new process, which may turn the current twice-daily price-setting conference call into an electronic auction.

The Chicago exchange's parent company CME Group and Thomson Reuters were named last week as the new operators of the electronic benchmark for silver that will also include an increased number of participants, in a move likely to precede sweeping reforms of the way precious metals are priced.

"Having won the silver price mandate in partnership with Thomson Reuters, CME Group would be delighted to be part of this proposal process with Thomson Reuters and look forward to engaging with the London Gold market participants," Hunnable said in a statement.

A spokesman for Thomson Reuters declined to comment on the CME statement, but Thomson Reuters GFMS head of research Rhona O'Connell said earlier: "Everyone who contributed to the recent discussions on the future of the silver price mechanism was absolutely mindful of the need to establish a method that is also applicable to other precious metals."

Eight companies had submitted proposals to run the silver fix, which also included the London Metal Exchange (LME), which had joined forces with technology provider Autilla.

The LME had yet to state whether it would submit a formal proposal to administer the gold fix, but said in a statement: "We are ready to expand our range of price discovery and post-trade tools to further service the precious metals market."

Autilla CEO Mike Greenacre said the electronic platform they proposed for silver had initially been designed to support changes in the gold market and that the company was continuing to develop it.

One of the other companies that submitted proposals to administer a replacement to the silver fix, McGraw Hill Group's subsidiary Platts, said dialogue with market participants and interested parties was ongoing.

A source close to the matter said other companies that had not bid for the silver benchmark replacement could now come forward with new proposals. (Reporting By Clara Denina and Jan Harvey; editing by Veronica Brown and Tom Pfeiffer)

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