Ten Firms Express Interest in Silver Fixing Replacement

Ten companies are interested in developing and running a replacement for the century-old London silver fixing benchmark that will end in August.

The London Bullion Market will create a shortlist from the requests for proposals and the industry group’s members will consider presentations at a seminar in London on June 20, the LBMA said today in a statement on its website. A survey conducted in May showed the market wants an electronic, auction-based process and one that’s tradable, the LBMA said June 5.

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 that’s used by mining companies to central banks. Companies including ETF Securities Ltd., the London Metal Exchange and CME Group Inc. have said they’ve proposed an alternative or have talked to the industry association about developing a replacement.

“It will be very interesting to hear what proposals are mooted,” David Govett, the head of precious metals at Marex Spectron Group in London, said today by e-mail. “I would be very surprised if the seminar wasn’t well attended.”

The seminar will be held on the afternoon of June 20 at Merchant Taylors’, 30 Threadneedle Street, London. The LBMA didn’t disclose the companies from which it received proposals.

Fixing Members

Deutsche Bank, HSBC Holdings Plc and Bank of Nova Scotia conduct the silver fixing each day at noon. The German bank stopped taking part in gold fixings in May after failing to agree on a sale of its seat. It postponed its planned April 29 resignation from the silver rate to Aug. 14.

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.

Regulatory focus on financial benchmarks is intensifying after rigging was uncovered in everything from interbank lending rates to currencies. Economists and academics have said fixings are susceptible to manipulation and lack sufficient regulation, while traders say the processes are efficient and crucial reference points for the market.

More than 440 participants completed an LBMA survey that also showed a new benchmark should have more direct participants. Sixty-four percent said they use the fixing daily and the usefulness of the current silver mechanism was rated an average of 7.5, on a scale up to 10, it said June 5.

ETF Securities, an exchange-traded-products provider, proposed using a five-minute auction process that occurs on the London Stock Exchange, Graham Tuckwell, chairman and founder of the Jersey-based company, said June 5. The LME, the world’s biggest metals bourse, said May 29 it had requests from industrial and financial companies to provide a daily rate and has defined a “robust” process for a price.

CME Group and Platts have also said they have talked to the LBMA about helping find a way to set prices.