March 26, 2015 / 4:46 PM / 4 years ago

LME looking to restore bullion forward curve, eyes broad market restructuring

LONDON, March 26 (Reuters) - The London Metal Exchange (LME) has started talking to the main bullion trading banks about reinstating end-of-day gold and silver forward curves, which could be part of a bigger structural change in the precious metals market.

A forward curve, which consists of a series of prices reflecting tradable values for future dates, is a key indicator of market sentiment and is widely used by banks as a reference point for clients’ forward positions at the end of each trading day.

The LME stopped providing forward curves late last year, when increased regulatory scrutiny of the way banks provide data to determine financial benchmarks made bullion market makers less inclined to participate in price-setting processes.

Forward market makers include Barclays, UBS and JPMorgan among others.

“The next thing for us is looking back at the forward curve, and we’ve been having a lot of conversations along those lines,” said LME head of Business Development Matt Chamberlain.

He said that the LME, part of Hong Kong Exchanges and Clearing Ltd, was now looking into producing forward curves based on executable forward bids and offers, or based on transactions of daily trades submitted anonymously by the banks.

“When you talk to market participants about that, you often get involved in a broader discussion about what the right structure for the business is and how the forward curve would fit into that.”

After the swift transformation of precious metals benchmarks last year, led by a regulatory drive to make them more transparent and less vulnerable to manipulation after the 2012 Libor scandal, there are more changes ahead.

New rules on over-the-counter derivatives are expected in Europe by 2016, while a broader review of UK markets is now evaluating the introduction of mandatory clearing and transaction-reporting obligations for precious metals.

“The business side is evolving and there are a lot of organisations and individual participants in London doing a lot of work around that,” Chamberlain said.

The exchange also suspended clearing services for over-the-counter trades in gold in September. These usually do not use a central counterparty but are cleared bilaterally.

The LME, which has been running the platinum and palladium price benchmarks since December, could also look at extending forward curves to these two metals, if the market required it, Chamberlain said. (Reporting by Clara Denina; Editing by Veronica Brown and Kevin Liffey)

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