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LME Aims for Test in Two Weeks of New Silver Benchmark

The London Metal Exchange, the world’s biggest metals bourse, aims to have ready in two weeks a testing process to replace the century-old London silver fixing benchmark that will end in August.

The LME is pursuing three platforms, including electronic trading, as an alternative to the benchmark used by miners to central banks, Matthew Chamberlain, head of business development, said at a briefing in London today. It’s also looking at using the exchange’s ring and a telephone system, and would use whichever option the market prefers, he said.

The London Silver Market Fixing Ltd. will stop running the fixing on Aug. 14, as Deutsche Bank AG’s planned exit as it scales back its commodities business would leave just two banks to conduct the price-setting ritual. The London Bullion Market Association said June 13 it received 10 proposals from firms interested in developing and running a new pricing mechanism. Firms shortlisted will present proposals to market members at a seminar in London on June 20.

“If the market wants to go down that route it will be deployed in the middle of July on traders’ desks so they then have a full month of using it before we go live on the 15th,” Chamberlain said, referring to an electronic platform and the August date. “Right now we have to concentrate liquidity on one platform, whatever the market prefers.”

Deutsche Bank, HSBC Holdings Plc and Bank of Nova Scotia conduct the silver fixing each day at noon. During the fix, the three member banks declare how much metal they want to buy or sell for clients as well as their own accounts. Traders relay shifts in supply and demand to clients and take fresh orders as the price changes, before the fix is made. The first silver fixing took place in 1897.

LBMA Survey

A survey conducted in May by the LBMA showed the market wants an electronic, auction-based process and one that’s tradable. The current method could be improved, Garry Jones, the LME’s chief executive officer, said at the briefing. The LME, founded in 1877, operates London’s last open-outcry trading floor, known as the ring.

The biggest concern for market participants is not having a new benchmark by Aug. 15 and the LME wants to promote London as the venue for a global silver price, Chamberlain said.

Companies including ETF Securities Ltd. and CME Group Inc. have said they’ve proposed an alternative or have talked to the industry association about developing a replacement for the fixing.

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