ETF Securities puts forward latest solution to the LBMA to replace London silver fix.
[This article originally appeared on our sister site, Europe.ETF.com.]
Exchange traded product provider ETF Securities has become the latest market participant to put forward a proposal to replace the London silver fix, which is due to end later this year in August.
The proposal, which was made to the London Bullion Market Association’s (LBMA), will put ETF Securities in competition with the likes of the London Metal Exchange, Chicago Mercantile Exchange and Platts, all of whom have reportedly entered discussions with the LBMA.
ETF Securities solution uses the existing auction system for shares at the London Stock Exchange and could make the price discovery function of silver highly transparent, unlike the current OTC system that is used.
Graham Tuckwell, chairman of ETF Securities, told ETF.com: “We can set it up tomorrow because the systems are already in place. All we would need to do is request the market makers hold an auction.”
He explained that the work that needs to be done is firstly working with the LSE on holding the auction at noon, which is when the silver fix occurs rather than at 4.30pm when the LSE trading system operating currently, and secondly to educate the LBMA members on how it works, so that they turn up to the auction.
The system is currently set up to hold an auction in the morning and evening with continuous trading in the day. It is not set up to halt continuous trading in the day, have an auction, then start continuous trading again.
“I see most of our work, not as coming with the idea, which is already there, but educating the members so that everyone turns up to the auction,” he said.
Tuckwell previously alluded to talks with exchanges over solutions for the London silver fix last month when he suggested that physically backed silver ETPs present a ready-made solution.
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.
The move to end the London silver fix was prompted after Deutsche Bank resigned its seat on the London gold and silver fixes without finding a buyer.
Tuckwell added: “Silver players need to find a solution and there is a system that is already in place. Our proposal, I believe, is the only definitive proposal that works when talking to market players.”
If the system is adopted, it could pave the way for a more transparent price discovery process in precious metals and potentially other commodities.