The Financial Times reported overnight on the uncertainty regarding the 117 year old silver price fix:
“Build it and they will come. Or that is what participants in London’s $1.6 trillion a year silver market will be hoping. There are just three trading days before the new, electronic replacement for the 117-year old silver fix goes live and there is still considerable uncertainty over who will be participating on Friday.
Since there is no centralised clearing for precious metals markets, the initial users of the new benchmark are expected to be the 11 market-making members of the London Bullion Market Association, which include Credit Suisse, JPMorgan, Goldman Sachs and UBS.
But
so far no one has publicly stepped forward to say they will be involved
even though testing of the system has gone without a hitch. The CME
Group, whose Comex exchange offers the biggest silver futures contract,
is providing the electronic price platform and the algorithm that will
be used to set the auction’s opening price. Thomson Reuters will take
care of the governance and administration.”
Interestingly, the FT also reports that there may be significant buying of silver in the coming days:
“Indeed, there are already rumours in the market place that some big silver producers and consumers are preparing to pepper the market with orders.”
This creates the possibility of the short squeeze that many market participants and silver analysts have been expecting for some time.
The FT says that the uncertainty is “only to be expected” and the list of participants may simply be released Friday.
However, the uncertainty is creating concern in the silver market amongst many participants who rely on the fix. There is a huge lack of transparency and little information about the pricing mechanism has been provided.
All that is clear is that the 117 year old silver fix is being replaced by a new “London Silver Price” with the handy acronym LSP.
The LSP is due to be administered on behalf of the LBMA by the CME Group and Thomson Reuters.
“Indeed, there are already rumours in the market place that some big silver producers and consumers are preparing to pepper the market with orders.”
This creates the possibility of the short squeeze that many market participants and silver analysts have been expecting for some time.
The FT says that the uncertainty is “only to be expected” and the list of participants may simply be released Friday.
However, the uncertainty is creating concern in the silver market amongst many participants who rely on the fix. There is a huge lack of transparency and little information about the pricing mechanism has been provided.
All that is clear is that the 117 year old silver fix is being replaced by a new “London Silver Price” with the handy acronym LSP.
The LSP is due to be administered on behalf of the LBMA by the CME Group and Thomson Reuters.
There is uncertainty as to whether the new price will be made publicly available through data providers, brokers etc.
Here is what the Bullion Desk had to say about the confusing situation:
The terms of the agreement state that the LSP should be equally available live for participating vendors With two days to go, it is far from clear that we – or other vendors – will be able to source the LSP and distribute it to our subscribers and data feed customers.
Here is what the Bullion Desk had to say about the confusing situation:
The terms of the agreement state that the LSP should be equally available live for participating vendors With two days to go, it is far from clear that we – or other vendors – will be able to source the LSP and distribute it to our subscribers and data feed customers.
What
we do know is that the LSP will be discovered through an electronic
auction process. There will be no chairman; instead, the system
algorithm will move the auction price up and down until buy and sell
orders are matched to within a reasonable tolerance of 300,000 ounces.
There will be a wider number of participants than the old fix, although we do not who they will be.
In
addition to the actual LSP price, it will theoretically be possible to
follow the live auction process, observing net supply and demand at the
various trial prices. Access to the LSP will initially be free but after
an introductory period of six months a fee must be paid.
There
are many questions then that still need answering, not least what the
auction data will look like and what it will cost to follow the LSP
process live or observe the price live. FastMarkets will continue to do
everything possible to secure this important silver benchmark for our
customers.
Silver in Dollars - 5 Year (Thomson Reuters)
Dan Rees, head of strategy for commodities at Thomson Reuters, said
last month that in order to facilitate a smooth transition, there would
be no major alterations to the current set up for a period of six
months. After that point a fee to access the new silver price is likely
to be instated.Silver in Dollars - 5 Year (Thomson Reuters)
The
old silver fix ended in April, after Deutsche Bank withdrew from the
process after the German financial regulator announced an investigation
into the gold and silver fixes. This left only two banks on the fixing
panel — Bank of Nova Scotia and HSBC Holdings who also under regulatory
pressure may have decided to discontinue the fix.
The
LBMA led search for an alternative came as market regulators had been
scrutinizing benchmarks across the financial sector in the wake of a
scandal involving rigging of interest rates, foreign exchange and other
markets.
We have concerns about both the new silver fix and the looming new gold fix.
We have concerns about both the new silver fix and the looming new gold fix.
From our point of view, the replacement of a handful of banks with CME
and Thomson Reuters was a positive development. However, the devil is
in the detail and it is important that the new price discovery mechanism
is transparent and that there is regulatory oversight.
CME
are the U.S.' largest and the world's second largest futures and
options exchange and we would have a concern that the new fixes are
derived solely from futures trading and electronic trading rather than
from actual supply and demand in the physical market.
Our concerns are due to the abuses that have been seen with regard to rogue traders, 'dark pools' and high speed computer trading. The CME themselves have acknowledged that markets are manipulated via high speed computer programs. Market participants need reassurance that such manipulation will not affect the new London Silver Price.
We believe that the recent rigging of the gold
price, as seen in the FCA's findings against Barclays, means that there
should be financial regulation and oversight of the new fixing process
by regulatory authorities.Our concerns are due to the abuses that have been seen with regard to rogue traders, 'dark pools' and high speed computer trading. The CME themselves have acknowledged that markets are manipulated via high speed computer programs. Market participants need reassurance that such manipulation will not affect the new London Silver Price.
Silver's very attractive fundamentals and the new silver fix coming this Friday were discussed in our recent interview here:
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