CME Group Inc. and Thomson Reuters Corp. will operate the London silver fix when the current 117-year-old process is disbanded in August, in a move widely seen preceding broad reforms of precious metals benchmarking.
The London Bullion Market Association (LBMA) said in a statement on Friday that CME Group will provide a price platform and methodology, while Thomson Reuters will be responsible for administration and governance.
CME/Thomson Reuters will start testing the new process in early August, the LBMA added.
The silver fix – used by producers, consumers and investors – is set every day at noon by three banks via a conference call, working out a price at which their customers are willing to buy and sell the metal.
But with increased attention from regulators in the wake of benchmark manipulation in other markets, the current operator of the benchmark – London Silver Market Fixing Ltd. – said in May that it would stop running the daily call.
The LBMA then consulted market participants with the aim of producing a transparent electronic alternative that complies with toughened regulatory benchmarking standards.
The new price mechanism is electronic, auction-based and auditable, the LBMA said. It is also tradeable with an increased number of direct participants.
“In the end, we had a workable structure, and two large organisations with plenty of experience behind them in terms of systems and compliance, and regulatory issues,” said Jonathan Spall of G Cubed Metals Ltd, which conducted an independent review for the LBMA as part of the selection process.
Thomson Reuters already works with the LBMA to administer Gold Forward Offered Rates (GOFO), a rate used in swap deals.
The overhaul of the silver fix is likely to mark the beginning of a major revamp of precious metals benchmarks, including the century-old gold fix and the platinum and palladium fixes.
Financial benchmarks have come under strong scrutiny from regulators around Europe and the United States since the revelation in 2012 that the London Interbank Offered Rate (Libor) had been rigged by British banks.
The banks involved in the current silver fixing are Deutsche Bank, HSBC and Bank of Nova Scotia-ScotiaMocatta.
Deutsche Bank’s decision earlier this year to leave the gold and silver fix process raised questions about the future of the precious metals benchmarking system.
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