By Ese Erheriene And Francesca Freeman
With the unveiling of London's shiny, new silver benchmark
Friday, metal producers and traders are hoping to head off
lingering concerns about the credibility of the market. But as the
price-setting process undergoes the first major overhaul in more
than a century, there are signs the revamped process isn't quite
ready.
"The overall impression I get from this is that everyone is a
little unsure of how it's all going to work--just because it's
something new," said David Govett, head of precious metals at
brokerage firm Marex Spectron. "The bullion market is quite a staid
market, shall we say, and a lot of the people in it, especially the
traders, have been around for a long old time."
There will be some "opening-night nerves," he said.
The old silver benchmark, known as the silver fix, has been used
to set the price for silver world-wide for the past 117 years. A
panel of three banks get together on a daily conference call to
establish a price for a range of users from mining companies to
high-street jewellers and central banks.
That system is being replaced by an electronic benchmark--called
the London Silver Price--run by a consortium of CME Group Inc. and
Thomson Reuters Corp., acting in partnership with the London
Bullion Market Association, a trade group. The new auction-based
electronic system will match buying and selling orders from
accredited market participants to reach a benchmark price.
The LBMA said that producers, refiners, trading houses and banks
have been helping to test the system in recent weeks. However, not
all groups that want to participate in the new electronic auction
have been accredited in time for the launch of the new
benchmark.
"The likelihood is not everyone who began the process will be
accredited tomorrow," said Aelred Connelly, a spokesman for the
LBMA. "But what we're going to see is over the weeks following
tomorrow, we'll get more and more on board."
The LBMA expects to publish on Friday a full list of
participants on its website, which it says will include a
cross-section of participants in the bullion sector.
Meanwhile, some in the metals industry said the CME/Thomson
Reuters benchmark would be an improvement on the old silver
fix.
The new system "provides more transparency; it mitigates
regulatory, legal and reputational risk," said Courtney Lynn,
treasurer of Coeur Mining, Inc. the largest listed producer of
primary silver in the U.S. "In this regulatory environment, if you
have a mechanism that lacks transparency and has such influence
over the market, the tendency is to assume bank malfeasance." Ms.
Lynn said.
The old silver fix--and the gold benchmark, which is set in a
similar way--have come under scrutiny from regulators recently, as
part of a wider probe into key financial benchmarks, including
those for interest rates and foreign exchange.
The silver fix was put on the fast track to extinction earlier
this year when Deutsche Bank AG said it was vacating its seat on
the silver fixing panel, leaving just two banks still taking part--
Bank of Nova Scotia and HSBC Holdings PLC. The move to an
electronic silver fix is likely to spell the end for the gold fix
too, according to traders.
"If the CME/Reuters system is good enough for the silver fix,
then to my mind it should be good enough for the gold fix," said
Mr. Govett.
Write to Francesca Freeman at francesca.freeman@wsj.com
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