London silver fix to be scrapped from August

- The London silver "fix", a global benchmark for spot silver prices, will cease to operate after Aug. 14, the company that administers the process said on Wednesday, amid rising regulatory scrutiny of price-setting in bullion markets.

Deutsche Bank AG, HSBC and Bank of Nova Scotia will continue to participate in the fix until then, the London Silver Market Fixing Ltd said.
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ancona said:

The price will still be "fixed", it will just switch from the current process to one in which "The Man" says this is the price for today, and everyone will simply have to like it. Same as it ever was.

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Uncertainty and confusion reigns in London just two days prior to the launch of the new silver fix - the renamed “London Silver Prices”.
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Interestingly, the FT also reports that there may be significant buying of silver in the coming days:

“Indeed, there are already rumours in the market place that some big silver producers and consumers are preparing to pepper the market with orders.”

This creates the possibility of the short squeeze that many market participants and silver analysts have been expecting for some time.
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The silver market was thrown into disarray on Thursday after the LBMA Silver Price was set 84 cents below the spot and futures price this morning.

The LBMA Silver Price – the crucial daily benchmark used by producers and traders around the world to settle silver products and derivatives contracts – was set at $13.58 per ounce.

At the time of the auction, which begins at 12 noon London time, the spot price was at $14.42 per ounce while the futures price on the CME was at $14.415, leaving a number of market participants extremely confused as to what has happened.

“The LBMA Silver Price is established through a transparent electronic auction mechanism designed to adjust the price until there is equilibrium between buy and sell orders,” a CME spokesman said.

CME and Thomson Reuters won the battle to provide the methodology and price platform for the daily process back in July 2014, replacing the 117-year old fix in August that year under sweeping reforms of the entire precious metals complex.

“Given the orders placed in the auction today by five participants, the buy and sell orders became balanced after 29 rounds and the LBMA Silver price was established at a price of $13.58,” CME added.

The difference between silver price and futures prices was nearly six percent but the benchmark cannot be changed, a second person familiar with proceedings told FastMarkets.

“Unfortunately, it’s not [a mistake],” Ole Hansen, head of commodity strategy for Saxo Bank, told FastMarkets. “This could be the end of the fix. It took 14 minutes to find a fix – they obviously found a fix way off of the market.”

Another source also suggested that the continued existence of the fix has been put in jeopardy by the huge discrepancy in today’s price, adding that many producers – who still use the price as their daily reference – may have lost significant amounts of money if any contracts have been settled according to the fix.

“A huge number of contracts are still settled on that price,” another said. “This will no doubt cause significant problems.”
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The price is set every day by six participants – HSBC, JPMorgan Chase Bank, Mitsui & Co Precious Metals, The Bank of Nova Scotia, Toronto Dominion Bank and UBS – using a system run by CME and Thomson Reuters.

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CME Group and Thomson Reuters are to step down from providing the LBMA silver price benchmark auction, the London Bullion Market Association said on Friday, less than three years after they successfully bid to provide the process.
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The two will continue to operate and administer the silver auction until a new provider is appointed, the LBMA said. It will launch a new tender to appoint an alternative provider to operate the process "shortly", it said.
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CME Group provides the electronic auction platform for the benchmark, while Thomson Reuters is responsible for administration and governance. The LBMA owns the intellectual property rights.

The original contract term was five years, running to 2019, the LBMA said. Participants in the current process include China Construction Bank, HSBC, JP Morgan Chase Bank, Morgan Stanley, ScotiaMocatta, the Toronto Dominion Bank and UBS.
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... Early last month the London Bullion Market Association (LBMA) announced that CME Group and Thomson-Reuters would no longer be the platform facilitators for the London Benchmark, despite both having two years left in their contracts.

The two companies stated that new regulations were the reason for their reviewing of their participation in the London Silver market, but no further explanation was given. There have been some suggestions that both CME Group and Thomson-Reuters left because they could see that the jig was up and the benchmark would no longer be able to operate in the way it has for so many years.

The fluctuations in the price and lack of liquidity has meant the LBMA is struggling to find a new operator, reports Reuters. The organisation is hoping that a new operator will shine a light on how the auction can continue. Whether they can do so with new regulation and banks finding it difficult to act honourably, is a question that remains to be answered.

New regulations on the horizon

Why are the banks and operators suddenly nervous about regulation? One would have thought that post-Libor and the financial crisis that they would have become wary. In truth they have been increasingly so over the last couple of years.

The push for more regulation has been going on since 2013 when a draft regulation was put forward “on indices used as benchmarks in financial instruments and financial contracts”. The final regulation was approved last April. The fact that the regulation specifically mentions benchmarks is pertinent.

On 1 January 2018 new regulations from the European Union will come into force. The regulations will make it harder for banks and platforms to manipulate financial markets such as Libor, Forex and obviously precious metals.
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