(Updates with details on LBMA consultation, paragraphs 16-17)
By Clara Denina and Jan Harvey
LONDON May 16 London's precious-metal price
benchmarks, including silver, the century-old gold "fix" and
platinum group metals are on the verge of major transformation,
industry sources say, as regulatory scrutiny and lawsuits hasten
Customers of the daily London silver fix, used as a global
benchmark, were shocked this week when its operator said it
would stop administering the 117-year-old process on Aug. 14.
The move came after Deutsche Bank, a member of
the gold and silver fix for two decades, failed to attract a
replacement after putting its seat up for sale.
While the development looked abrupt to customers, watchers
of the backdrop around benchmarks after the Libor rate-rigging
scandal see change as inevitable.
"The future of benchmarks and how they are being put
together is now in the balance," said Clive Furness, managing
director of Contango Markets Ltd.
"I think it's essential that we have a set of proper,
definitive guidelines for index creation and maintenance that
are accepted around the marketplace. Hearsay reporting on
markets is not good enough anymore," he added.
In years gone by, seats at the gold and silver fixing tables
were a mark of distinction for a bullion bank, a sign that its
business was deep and respected enough to take a hand in setting
the leading global benchmarks.
Those days are gone.
"The banks don't want any aggravation from current
regulatory scrutiny and they will drift away from it," a senior
gold trader said.
Before Deutsche's exit, other precious metals institutions
had pulled out of the benchmarking process, but had always found
Increasingly, industry experts now believe regulatory
scrutiny of the remaining four gold fixing banks - HSBC
, Societe Generale, Barclays and Bank
of Nova Scotia - will also see them capitulate.
Barclays, Societe Generale, Bank of Nova Scotia and HSBC
declined to comment on the future of the gold fix.
SEEKING A SILVER BULLET
A raft of regulators, including Bafin in Germany, Britain's
Financial Conduct Authority and the U.S. Commodity Futures
Trading Commission have indicated that they're looking at the
The way the fix and other commodity benchmarks are set was
brought into the spotlight by the collapse of Libor (London
Interbank Offered Rate), a central cog in the global financial
system and the subject of a lengthy investigation.
With a wind-down of silver's price benchmark under way, the
London Bullion Market Association (LBMA) is approaching miners,
users of the benchmarks, regulators and potential administrators
to find a possible alternative before August.
In an online survey, the bullion association asks market
participants whom they would consider as ideal contributors to a
revised pricing mechanism.
"We will also be liaising closely with any companies who
would be interested in contributing to the London Silver price
as well as those interested in its administration," it said in a
The LBMA is also considering outsourcing the administration
of its gold forward offered rates to a third party as it
prepares for the implementation of new benchmarking regulations
from the International Organization of Securities Commissions.
Banks arrive at the gold fix through matching buy and sell
orders during a twice-daily telephone call, which miners,
jewellers and central and commercial banks use to trade gold.
The same process is applied twice daily to platinum and
palladium, with a daily call on silver.
As the market searches for a replacement for the silver fix,
technology providers and exchanges have also been investigating
ways to offer a more transparent way of disseminating
information on the price-setting process, or a possible
substitute for it.
"We are working on an alternative proposal (to the silver
fix) already," one technology provider said.
"It would still be an auction but rather than having a
fixing company, we could just operate it as a market-maker
solution run through a daily auction on an electronic platform."
Large exchanges including the CME and London Metal Exchange
have also been mentioned as possible providers of an alternative
to the fixes.
Market watchers say a number of U.S. antitrust lawsuits
against the banks involved in setting the gold fix are also
pressing the case for change.
"I think the big issue now is the reputational risk that has
been done to the fixes as an equilibrium price," Sharps Pixley
CEO Ross Norman said.
(Additional reporting by Veronica Brown; Editing by Veronica
Brown and Dale Hudson)