More Than A Few Risk Management Companies Want To Take Over The Silver Fix
[heading]More Than A Few Risk Management Companies Want To Take Over The Silver Fix[/heading]
Market benchmarks across the globe have come under heavier scrutiny amid allegations and discoveries of endemic market manipulation across the economic spectrum. Indeed, from interest rates to the gold price.
The May 14 announcement regarding the August 14, 2014 cessation of the London Silver Fix caught many silver investors off-guard. The response has been diverse and, in the absence of much information, speculative.
Stemming back to the late 19th century, the London silver fix has been a gathering of London bullion dealers to daily set the price of silver. Now, after 117 years of operation, the silver fix exists no longer.
Yesterday it was announced that there is no shortage of parties interested in replacing the fix, including two of the world’s leading commodities exchanges.
The London Metal Exchange and CME Group
The London Metal Exchange and CME Group each announced Thursday they are participating in separate talks with silver market participants regarding the hosting of a new pricing benchmark in the wake of the London silver fix’s last meeting.
LME’s proposal seems relatively advanced compared to CME Group’s. Both exchanges are looking to develop benchmarks based on actual trading of the metal, which is the official manner in which the price if currently fixed.
LME has said its proposal will “provide best-practice regulatory compliance while maintaining the global position of the London market,” highlighting the interest of some financial powers to keep the world center of the gold market in London. The LME is owned by Hong Kong Exchanges And Clearing Ltd. It said it would provide further details “at the appropriate time once the market consultation is complete.”
LME might be a controversial candidate for some individuals who have followed the silver market.
“The LME operated a 10,000 ounce silver contract in the 1970s, which was suspended the following decade after an attempt by the Hunt Brothers to corner the market sapped all liquidity from the market,” a trading source said. For those who don’t know, the Hunt brothers attempted to corner the silver market – buy up most the supply – from 1979-1980.
Market information provider Platts, which is active in coal and iron ore price setting, and the Chicago Mercantile Exchange, responsible for most futures trading in precious metals and base metals on US markets, are also interested in taking over the fix.
What Is The Fix?
The fix is the price used by mining companies to settle sales contracts, and it is used to price such derivatives as exchange-traded funds. It also affects global jewelry prices.
How the fix has been set has changed over its history. In its most recent manifestation, the fix has been set daily at noon via conference call with representatives from Deutsche Bank, HSBC Holdings, and Bank of Nova Scotia. But, according to people near the fix, the fix has been seen as “unviable.”
When Deutsche Bank declared its intention to leave the process due to its reduction in the commodities business, London Silver Market Fixing announced it would put its benchmark to rest. Deutsche Bank has seen lawsuits against it piling up, including an ongoing probe by the UK financial regulator.
Both the silver fix and the gold fix have recently come under heavy by scrutiny regulators as financial benchmarks received under broader scrutiny due to the LIBOR scandal.
Justin O’Connell is the CEO of GoldSilverBitcoin, Head Researcher at Dollar Vigilante, author of Bitcoinomics as well as a co-host at Our Very Own Special Show, a lifestyle podcast about music, news, life and other topics.