* LME has made proposal to enhance existing phone method
* Exchange could use its open outcry floor for silver fix
* Third alternative makes use of its electronic platform
(Adds details, quotes, background)
By Clara Denina and Eric Onstad
LONDON, June 16 The London Metal Exchange (LME),
competing to offer a replacement for the London silver
benchmark, said on Monday it could offer three alternatives
including an enhanced telephone-based process and an option for
open-outcry price setting.
The 117-year-old London silver price benchmark - or fix -
will cease on Aug. 14, its operator - London Silver Market
Fixing Limited - said last month, as regulatory scrutiny of
price-setting intensifies across markets.
"We are very interested in playing a greater role in the
silver and gold markets," LME Chief Executive Garry Jones said.
The LME, owned by Hong Kong Exchanges and Clearing Ltd
, had already proposed an alternative to the current
telephone-based method, with better auditing and compliance.
This would include an independent chairman from the LME
pricing committee, LME executives told a presentation in London.
Matthew Chamberlain, head of business development at the LME
said that the market's initial concern was the lack of a
benchmark pricing mechanism for silver when the existing system
is dismantled on Aug. 15.
The LME would be prepared to offer any one of its three
solutions by Aug. 15, depending on what the market prefers, he
A ring-based solution came from strong industry demand, but
there may be difficulty in finding sufficient liquidity, he
"The challenge is to make sure there is sufficient ring
representation in the silver ring as in the base metals ring."
Silver market players are in favour of an electronic,
auction-based system for setting a benchmark price, the London
Bullion Market Association (LBMA) said earlier this month.
Chamberlain said this electronic solution was the "most
difficult to achieve in such a short period of time".
The LME would use its electronic platform LME Select, which
is already available to LBMA market makers such as JPMorgan and
Societe Generale, as they are already involved in base metals.
He said the exchange was working to get "everything ready by
mid-July for the market to test".
The fix is set every day at noon by HSBC, Deutsche
Bank and Scotiabank, which get together over
the telephone to work out the price at which their customers are
willing to buy and sell the metal.
The move to disband the silver fix came after Deutsche Bank,
a member of the gold and silver fix for two decades, failed to
attract a buyer after putting its seats up for sale in January.
The LME and the Chicago Mercantile Exchange (CME) both said
last month they were working with the LBMA and the precious
metals industry to find an electronic-based solution to the
silver fix when the system is disbanded.
They are joined by eight other companies interested in
administering the silver price benchmark, the LBMA said on its
Two sources involved in the talks said the list includes
Intercontinental Exchange (ICE), which has been running the
LIBOR benchmark since February. The exchange declined to
The LBMA will decide which proposal is adopted. All 10 will
be presented at a seminar to market members on June 20, sources
said, although the association said it will short-list the best
Members of the association, which include the current fixers
and other large bullion-trading banks such as JPMorgan and UBS,
would also provide feedback on the proposals at the seminar, the
(Reporting by Eric Onstad and Clara Denina; Writing by Susan
Thomas; Editing by Veronica Brown, Mark Potter and David Evans)