ETPs Likely Solution To Replace London Silver Fix

May 21, 2014

Silver exchange traded products could be the solution to a new, more transparent spot price, when the London silver fix ends later this year on August 14th.

Following the announcement last week that the London silver fix, a global benchmark for spot silver prices, will end on August 14th, Graham Tuckwell, chairman at ETF Securities said that silver ETPs could be the solution.

“A daily silver price can be based on ETPs because they represent the spot silver price. This market also works in tandem with the futures market,” said Tuckwell. “This is a good thing because ETPs offer more transparency and it also has the benefit of giving recognition to the ETP market. There is already a solution for when the London fix ends in August.”

The London silver fix is a spot price set daily via teleconference by the three fixing members - Deutsche Bank, HSBC and Bank of Nova Scotia. This style of price setting, known more commonly as the over-the-counter market, has come under regulatory scrutiny following the LIBOR scandal two years ago. It has prompted banks involved in the process to withdraw.

According to an article put out by Reuters last week, Deutsche Bank has resigned its seat on the London gold and silver fixes without finding a buyer.  Deutsche Bank did not respond to requests for comment in time for publication.

However, whether the market will use ETPs as the best way to set the silver price after August 14th is unclear.

Tuckwell added: “There will be scepticism until people see what ETPs can do and what they are about. ETPs show the spot price.”

The London Bullion Metal Association (LBMA), the international trade association, which represents the London market for gold and silver bullion, has announced it is running a consultation process to establish the best way forward.

Ruth Crowell, the LBMA Chief Executive, said in a statement: “As part of our role as the trade association for the London Bullion Market, the LBMA has launched a consultation in order to ensure the best way forward for a London silver daily price mechanism. The LBMA will work with market participants, regulators and potential administrators to ensure the London Silver Market continues to serve efficiently the needs of market users around the world. As part of the consultation process, the LBMA will be actively approaching market participants requesting feedback.”

Should ETPs get the go ahead to replace the London silver fix, the exact process of when and how the price is taken will need to be established.

“It is likely that the price will have to be time-weighted rather than volume-weighted, and we will be talking to exchanges about this in the near future,” said Tuckwell.

 

 

Find your next ETF

Reset All