LBMA Gets 8 Proposals to Replace Century-Old Gold Fixing

Intercontinental Exchange Inc., the London Metal Exchange and CME Group Inc. and Thomson Reuters Corp. are among firms shortlisted to develop and run a replacement for the century-old London gold fixing benchmark.

Autilla Ltd. (Sapient) and EBS are also on the shortlist, the London Bullion Market Association said in a statement today. Ten companies submitted eight proposals, some of them joint. The LBMA, which said last week firms will present at a seminar on Oct. 24, expects a market consensus to emerge next month and the chosen method adopted by year-end or early 2015.

Silver became the first precious metal to ditch the daily phone-based fixing in August after Deutsche Bank AG said it would stop participating as it scales back its commodities business. CME and Thomson Reuters administer the new silver method, while the LME will take over platinum and palladium fixings on Dec. 1. Scrutiny on how benchmarks are set increased after regulators uncovered price-rigging in everything from interbank-loan rates to currencies.

“Only with market engagement can a solution work in practice and we are keen that as many market participants are involved in the process,” Ruth Crowell, chief executive of the LBMA, said in the statement. “We are also specifically looking to identify those participants who are willing to take part in the launch of the new mechanism.”

Deutsche Bank’s exit from the gold process this year left Societe Generale SA, Bank of Nova Scotia, HSBC Holdings Plc and Barclays Plc to conduct fixings used by miners and central banks to trade and value metal. The banks and the LBMA said in July that the process, which dates to 1919, would be revamped.

Electronic Method

The new mechanism should be an electronic, auction based system, according to a market survey that got 130 responses, the LBMA said. The process should display real volumes and have more direct participants, including non-banks, it said.

Sixty-nine percent of respondents said they use the gold mechanism daily, and 83 percent said at least a proportion of their gold trading was carried out on the fixing. Seventy-six percent said in the survey that the price-discovery method is sufficient, 31 percent said they’d consider being a contributor, while 42 percent said they wouldn’t.

Gold was fixed at $1,234.25 an ounce in London this afternoon. Bullion for immediate delivery has gained 2.7 percent this year, after slumping 28 percent in 2013 in its biggest annual decline in three decades. About $18 trillion of gold circulated globally last year, according to CPM Group, a New York-based research company.

Fixing Procedure

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.

CME Group and Thomson Reuters Corp. began running the new silver system on Aug. 15 and the company that currently runs platinum and palladium rituals said yesterday that the LME would take over for those metals on Dec. 1. The LME is the world’s largest industrial-metals bourse.

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