ICE to Run Replacement for Century-Old London Gold Fixing

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LBMA Chief Executive Ruth Crowell
London Bullion Market Association Chief Executive Officer Ruth Crowell said in a statement, “I’m delighted to announce an administrator in time to allow the market to move forward from consultation into timely implementation.” Photographer: Chris Ratcliffe/Bloomberg

ICE Benchmark Administration will run the replacement for the 95-year-old London gold fixing, as benchmarks for other precious metals were overhauled this year.

Intercontinental Exchange Inc.’s IBA will provide a price platform, methodology and administer the procedure that now takes place by phone each day at 10:30 a.m. and 3 p.m., the London Bullion Market Association and ICE said today in statements. Societe Generale SA, Bank of Nova Scotia, HSBC Holdings Plc and Barclays Plc currently conduct the fixings used by miners to central banks to trade and value metal.

Silver became the first precious metal to ditch the daily fixing procedure in August after Deutsche Bank AG said it would stop taking part as it scales back its commodities business. A new mechanism will replace platinum and palladium fixes on Dec. 1. Scrutiny on how benchmarks are set increased after regulators uncovered price-rigging in everything from interbank-loan rates to currencies. IBA said it expects to start running the LBMA Gold Price in the first quarter of next year.

“I’m delighted to announce an administrator in time to allow the market to move forward from consultation into timely implementation,” Ruth Crowell, chief executive of the LBMA, said in a statement. “While we know that it is subject to internal compliance approvals, we are pleased to have 11 entities intending to be phase one participants.”

Consultation Period

The LBMA ran two market surveys, a seminar and met with participants during a consultation period in which a consensus was reached that IBA should be the administrator, the association said. IBA is responsible for the London interbank offered rate.

The London Gold Market Fixing Ltd. said in July that the LBMA would help in seeking to appoint a new administrator. The association said Oct. 17 that ICE, the London Metal Exchange, CME Group Inc. and Thomson Reuters Corp., Autilla Ltd. (Sapient) and EBS were shortlisted. The firms presented proposals to the market at an Oct. 24 seminar in London.

About $18 trillion of gold circulated globally last year, according to CPM Group, a New York-based research company. Gold was fixed at $1,145 an ounce in London this morning. Bullion for immediate delivery reached a four-year low of $1,132.16 earlier today and is down 4.8 percent this year. Prices slumped 28 percent in 2013, the biggest annual decline in three decades.

Gold Fixing

Deutsche Bank’s withdrawal from the gold fixing in May left just four other banks to conduct the ritual that dates back to 1919. Meetings had been held in a wood-paneled room at Rothschild’s offices in St. Swithin’s Lane until the process was switched to a telephone conference call in 2004.

During fixings, members 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 spot price changes, before the fix is made. Participants can trade the metal and its derivatives on the over-the-counter market and exchanges during the calls.

The LBMA Gold Price will be a physically settled, electronic and tradable auction, IBA said. Aggregated gold bids and offers will be published real-time and the price updated every 30 seconds until a balance is found.

Guidelines for financial benchmarks designed to improve integrity and reliability in the wake of the Libor scandal were published by the International Organization of Securities Commissions last year. The principles cover issues of governance and methodology, with one of the key recommendations the use of “observable transactions” as the basis of a benchmark.

New Procedures

“We look forward to working closely with the LBMA and the precious metals industry as we deliver an IOSCO-compliant benchmark that fulfills the requirements of market participants in an efficient and transparent manner,” Finbarr Hutcheson, president of IBA, said in a statement.

CME Group and Thomson Reuters began running the new electronic, auction-based silver system on Aug. 15, three months after the three banks conducting the procedure said they would stop participating. The London Metal Exchange will run the platinum and palladium replacement on Dec. 1.

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