By Dow Jones Business News,
May 29, 2014, 01:43:00 PM EDT
By Francesca Freeman
Two of the world's leading commodities exchanges are competing to fix London's silver fix.
The London Metal Exchange and CME Group each said Thursday they are separately talking with market participants
about hosting a new pricing benchmark after the 117-year-old London silver fix is set for the last time on Aug. 14.
While the LME's proposal is relatively advanced, CME Group is only in the early stages of considering a new silver
fix, people with knowledge of the matter said. Both exchanges are considering benchmarks that are based on actual trades
of the metal, as is the case with the current system.
"We are working closely with the precious metals industry and the [London Bullion Market Association] to reduce
market disruption by helping to find a robust transaction-based way to set the daily spot price so the markets can
continue to work efficiently and seamlessly," said Harriet Hunnable, managing director of metals at CME Group.
The LME went one further, saying it already has a proposal that will "provide best-practice regulatory compliance
while maintaining the global position of the London market." The LME, which is owned by Hong Kong Exchanges and Clearing
Ltd., said it would give more detail "at the appropriate time once the market consultation is complete."
The news was met with cautious optimism.
"Our concern as a producer is being able to transact at the fix," said Courtney Lynn, treasurer of Coeur Mining
Inc., the largest listed U.S. primary-silver producer. "The challenge is going to be getting broad acceptance" of a new
benchmark, she said.
As well as setting a price that is used by mining companies to settle sales contracts, the fix is used to price
derivatives such as exchange-traded funds and affects global jewelry prices.
Ross Norman, chief executive of London-based bullion dealer Sharps Pixley, said he had concerns over the time
"To replicate...a system that has developed over 117 years is tough to do," he said.
The silver fix has gone through various iterations in its history. Most recently, it has been set daily at noon by
way of a conference call involving representatives from Deutsche Bank AG, HSBC Holdings PLC and Bank of Nova Scotia. But
the benchmark was considered unviable, according to people familiar with the matter. And after Deutsche Bank declared
its intention to leave the process as part of a wider reduction of its commodities business, London Silver Market Fixing
Ltd., which administers the fix, announced the end of the benchmark.
The silver fix and the gold fix, which is set by four banks and has been around since 1919, have recently come
under the scrutiny of regulators as part of a broader examination of financial benchmarks in the wake of a global
scandal involving the rigging of interest rates.
Spokespeople for Deutsche Bank and HSBC declined to comment. A spokesman for Bank of Nova Scotia didn't respond to
a request for comment. A spokesman for the LBMA didn't respond to a request for comment.
Write to Francesca Freeman at firstname.lastname@example.org
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