Tuesday 29th September 2020

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Meet the new fix

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Claims of greater transparency fail to satisfy some critics of the new LBMA silver price

LBMA-accredited participants can follow buy and sell volumes in real time.
(Image: Thomson Reuters)


How well did boosters defend their new system during the conference’s Q&A session? Here are some examples.

“Is there any physical delivery required on the London price auction? If so, how can we be sure that the transactions are fully completed with metal transfers delivered and money transferred as well?”

Hunnable replied, “Physical delivery should occur as it has done in the past and we see that there is continuity in the current setup to allow this important spot market to go forward as it has done before.”

“What regulators are overseeing the London silver price and are they taking an active role on a daily basis to check for bid-rigging and collusion between participants?”

LBMA chief executive Ruth Crowell responded, “Currently the only regulated benchmark in the UK is Libor, so the LBMA silver price is not currently regulated. That said, all three keep open conversations going with the FCA [Financial Conduct Authority] with regards to the price. Although it is not a regulated benchmark we have absolutely set up the governance and TR has decided that on a best practice as if it were a regulated benchmark. So you have all the benefits … of not only the CME’s surveillance but ultimately Thomson Reuters’ governance.”

“If you are looking for more participants, why do you have 100,000-ounce minimum offers for the auction?”

Crowell: “This is a price and auction process for the wholesale market and has a focus on one lakh. Ultimately in terms of participants we are looking for wholesale, business-to-business participants to take part in that auction. The size is appropriate for those.”

“What is the function of the algorithm and why is it needed if the silver price is freely traded?”

Currently the only regulated benchmark in the UK is Libor, so the LBMA silver price is not currently regulated.—Ruth Crowell, chief executive
of the London Bullion
Market Association

Hunnable: “The algorithm really allows the price to be reset and then for the market to come in and to express whether they have buying or selling or balance of interest in that view which would then determine the LBMA silver price. The algorithm simply enables the auction mechanism to work very efficiently, to provide independence in terms of that the price is tried at the beginning of each round and also it’s highly efficient … and introduces a higher level of independence … so it’s independent and it’s efficient.”

Some of those replies might have benefited from greater conviction, not to mention clarity. Nevertheless, Sharps Pixley CEO Ross Norman had guarded praise for the new silver order. Speaking to BNN following the system’s August 15 debut, he called the performance “adequate,” saying he expects it will improve.

“My problem is it’s available only through a couple of newswires with a very hefty subscription package attached to it. I think it needs to be widely available,” he argued.

“The ordinary investor needs to be able to see the fixing process in action, with the bids and the offers going in, perhaps not precisely saying who’s behind them. But certainly from a regulatory standpoint, they do need to have that information, not only at the top level, which is to say who’s buying and selling, but who their clients are.”

But he maintained that the new system’s initial price was valid. “The amount of trading verified that.”

Gold pricing will probably face reform as well, but not necessarily with the same platform and participants, he added. Platinum and palladium will likely follow.

Thomson Reuters’ Leyland pegged 2013 total London market volume at 76 billion ounces with a market value of $1.8 trillion, equivalent to about 90 times the year’s total mining production.

Read about the Silver Institute’s 2013 annual report.

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