* First of series of precious metals benchmark overhauls
* Not all interested participants ready by Friday -LBMA
* Will take form of online 'equilibrium auction'
By Clara Denina and Jan Harvey
LONDON, Aug 15 The silver market enters a new
electronic era in benchmarking on Friday after a regulatory
drive for more transparency in price setting brought the
117-year-old silver 'fix' to an end.
The final conference call took place on Thursday between
banker-dealers in the London silver market in the old process of
fixing the benchmark silver price.
Driving the change has been the increased scrutiny of
precious metals 'fixes' by European and U.S. watchdogs in the
wake of benchmark manipulation in other financial
The new price mechanism is not only electronic,
auction-based and auditable; it is also tradable with an
increased number of direct participants.
The process will be operated jointly by the Chicago
Mercantile Exchange, which provides the platform and
algorithm, and administrator Thomson Reuters.
The London Bullion Market Association (LBMA), which acted as
a facilitator in the quest to find an alternative to the
benchmark, said on its website that the exact number of
participants in the first auction would not be known until
Banks, trading houses, refiners and producers have expressed
interest in contributing, "but the tight schedule and the time
of year has imposed time constraints on some potential
participants seeking internal sign-off on the necessary credit,
legal, compliance and IT requirements", the LBMA said.
"This means that not all those who have already participated
in the live trials will be accredited in time to participate on
15th August," it added.
At its silver price webinar in July, the CME said that "for
day one participation, we are looking at the LBMA market-makers
with consistent and constant bilateral credit facilities".
Eleven institutions are LBMA market makers for gold and
Credit Suisse said on Thursday that it would be
taking part in the new process, while UBS said in an
email that "it is currently evaluating the feasibility of
becoming an auction member in the near future".
HSBC, Societe Generale, JP Morgan, Bank of
America-Merrill Lynch, Deutsche Bank and Barclays
declined to comment on whether they will be involved in
the process from day one. Bank of Nova Scotia, Mitsui Precious
Metals and Goldman Sachs did not respond to a request for
HOW IT WILL WORK
The new benchmark - used by producers, consumers and
investors - will be set every day at noon, but as an online
'equilibrium auction' that will be conducted over multiple
Like the old process, it will start with a price that
reflects the spot market level. Then within each round of the
auction, participants will enter their buy and/or sell orders,
which will be compared at the end of each round to determine if
the market is balanced or not.
To be balanced, the total of buy versus sell orders entered
by all market participants need to be within a certain
tolerance, which is initially three lakhs, or 300,000 ounces.
If the market is not balanced, a new suggested price is
automatically calculated (moved up or down on the side of the
imbalance) and a new round begins at this price.
If the market is balanced, the London Silver Price is
determined, and market participants then execute trades based on
the buy/sell orders they entered in the last round and any
at-market orders entered.
The operator and administrator will have full transparency
about the names during the auction process, but participants,
who can change the size of their orders at any time, cannot see
the names of others.
The overhaul of the silver fix process is the first in a
series of revamps of all precious metals benchmarks, including
the century-old gold fix and the platinum and palladium fixes,
whose operators earlier this month said were looking for a new
Some of the companies that had proposed alternatives to the
silver fix said they would send their tenders for the gold
market, when the request for proposals process starts at the end
(Editing by Veronica Brown and Jane Baird)