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* LBMA settles on silver fix replacement after 2-month hunt
* New mechanism heralds change in precious metals benchmarks
By Clara Denina and Jan Harvey
LONDON, July 11 CME Group and Thomson
Reuters will operate an electronic silver benchmark
when the 117-year-old "fix" is disbanded in August, in a move
widely seen preceding sweeping reforms of precious metals
The London Bullion Market Association (LBMA) said in a
statement on Friday that CME Group will provide a price platform
and methodology for the daily process, while Thomson Reuters is
responsible for administration and governance.
CME/Thomson Reuters will start testing the new process in
early August after the closely contested competition to produce
The silver fix - used by producers, consumers and investors
- is set every day at noon by three banks via a conference call,
working out a price at which their customers are willing to buy
and sell the metal.
But with increased attention from regulators in the wake of
benchmark manipulation in other markets, the current operator -
London Silver Market Fixing Ltd - said in May it would stop
running the daily call.
The LBMA consulted market participants with the aim of
producing a transparent electronic alternative that complies
with toughened regulatory benchmarking standards.
The association received seven proposals. The main
contenders also included the London Metal Exchange (LME) and
technology provider Autilla, which had this week joined forces;
U.S. derivatives exchange Intercontinental Exchange, and
U.S. news agency Bloomberg.
The new price mechanism is electronic, auction-based and
auditable, the LBMA said. It is also tradeable with an increased
number of direct participants.
"The winner of the silver fixings is of course the first who
would have his hat in the ring when it comes to conducting the
other fixings," said one market participant who took part in the
The overhaul of the silver fix is likely to mark the
beginning of a major revamp of precious metals benchmarks,
including the century-old gold fix and the platinum and
Some of the companies that had proposed alternatives to the
silver fix said they would be ready to assist the gold market,
should the current benchmarking process be reformed.
The LME said "we are ready to expand our range of products
to further service the industry".
A CME statement said: "We regularly review the market
landscape and global dynamics of the gold market, and we
continue to talk with customers and market participants about
new and innovative ways to help them manage their global price
The World Gold Council held a discussion among buyers and
sellers of gold last week on ways to reform the price benchmark.
Financial details of the service to be provided by CME Group
and Thomson Reuters were not disclosed.
Although market participants view many aspects of the
existing gold process favourably, reforms still need to comply
with the 19 principles on financial benchmarks outlined in July
2013 by the International Organization of Securities Commissions
(IOSCO), an umbrella body of market regulators.
"In the end, we had a workable structure, and two large
organisations with plenty of experience behind them in terms of
systems and compliance, and regulatory issues," said Jonathan
Spall of G Cubed Metals Ltd, which conducted an independent
review for the LBMA as part of the selection process.
Thomson Reuters already works with the LBMA to administer
Gold Forward Offered Rates, used in swap deals.
The banks involved in the current silver fixing are Deutsche
Bank, HSBC and Bank of Nova
Deutsche Bank's decision earlier this year to leave the gold
and silver fix process raised questions about the future of the
precious metals benchmarking system.
Barclays Plc and Societe Generale operate
the gold fixing, along with Scotia and HSBC, while Deutsche Bank
stopped in May after two decades.
A senior British regulator said last week when answering
lawmakers' questions on the trustworthiness of the gold market
that collusion among banks in setting the gold benchmark was
possible, but there is no evidence of this.
(Editing by Veronica Brown and Dale Hudson)