| NEW YORK, April 30
NEW YORK, April 30 Deutsche Bank's
exit from the London precious metal fixes will leave just two
banks running a century-old system that sets the global silver
price, likely stirring the debate about regulation of one of the
most volatile commodity markets.
The bank's decision to resign its seat ends an unsuccessful
four-month search for a buyer, as U.S. lawsuits alleging gold
price-rigging by the five banks that set the benchmark turned
potential suitors cold, sources said.
Scotiabank and HSBC, the only remaining
members of the silver pricing committee, will likely face
renewed scrutiny of a daily system whose roots go back to the
smoky, boisterous coffee houses of 19th-century London.
The modern process, which started in the 1960s, is now run
by telephones and is largely similar to the twice-daily gold
"This will lend it to more scrutiny over manipulation," said
a senior precious metals trader at a mid-sized bank who has
worked on Wall Street for 20 years and uses both fixes.
Squeezing billions of dollars of business through a handful
of banks that match off orders to arrive at a benchmark price
over the phone is seen by detractors as anachronistic and
Supporters of the fix say the number of members may be
shrinking but that order volume that contributes to setting the
final price is still healthy.
On Tuesday, Britain's financial watchdog, the Financial
Conduct Authority (FCA), said it could intervene if there are
too few participants in commodity benchmarks such as gold and
"If there is a risk of dislocation because people are
withdrawing and we think that breaches or is a risk to our
objectives, then we would set that as one of our activities but
it is not entirely straightforward," head of enforcement and
financial crime Tracey McDermott said on Tuesday.
The gold fix, 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.
The International Organization of Securities Commissions
issued guidance in July covering all benchmarks that are central
cogs in the global economy, from interest rates to equities and
At least a dozen U.S. private plaintiff lawsuits accuse the
five banks in the gold fix committee of manipulating the price
of the metal.
Those lawsuits have not targeted the silver fix, which
started in 1897, about a quarter of a century before gold, and
is broadly similar to the twice-daily gold fix.
At the start of each fixing, the chairman announces an
opening price to the other members, which relay that to their
customers and, based on orders received from them, instruct
their representatives to declare themselves buyers or sellers at
The price is adjusted up and down until demand and supply
are matched, at which point the price is "fixed."
Even so, the silver futures market, whose prices have
gyrated wildly in recent years, is no stranger to regulatory and
In a five-year probe, the U.S. Commodity Futures Trading
Commission investigated allegations that some of the world's
biggest bullion banks including JPMorgan Chase & Co
distorted silver futures prices.
After 7,000 staff hours of investigation, the U.S. commodity
regulator found no evidence of wrongdoing and dropped the probe
The banks faced similar accusations in a long-running class
action antitrust lawsuit that was dismissed at the end of last
month by a federal appeals court.
'GOOD OR BAD, WE HAVE TO USE IT'
Whatever the outcome of the latest scrutiny, some users,
including mining companies, which hedge production against the
benchmark, may have little choice for now but to rely on it even
with just two members.
"Whether it is good or bad or if it is down to two members,
we have to use it," said Ounesh Reebye, vice president of metal
sales at mining company Silver Wheaton, which is expected to
produce 36 million ounces of silver this year.
(Additional reporting by Josephine Mason; Editing by Josephine
Mason and Steve Orlofsky)