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.
A spokesman for the LBMA said no decision had been made as to
who would administer the fix after Aug. 14.
As well as setting a price that is used by mining companies to
settle sales contracts, the fix is used to price such derivatives
as exchange-traded funds. It also affects global jewelry
prices.
Ross Norman, chief executive of London-based bullion dealer
Sharps Pixley, said he had concerns over the time frame.
"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.
Write to Francesca Freeman at francesca.freeman@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires