Tags: gold | fix | London | Libor

Overhaul of London Gold 'Fix' Expected Imminently

Wednesday, 16 Jul 2014 09:41 AM

A statement on reforming the century-old system of benchmarking gold prices is expected imminently ahead of the implementation of new regulations governing financial benchmarks, a source familiar with the matter said on Wednesday.

Changes to the current gold "fix," a twice-daily auction process between four banks that takes place over the telephone, are likely to include a new code of conduct for participants and the appointment of an independent chairman, the source said.

Current administrator of the gold benchmark, London Gold Market Fixing Ltd., will also request proposals to administer the benchmarking process, the source added.

A similar process took place in the silver market in recent months and that yielded an electronic auction mechanism to replace a daily conference call with three banks.

"There has been a call for a certain amount of third-party engagement and oversight ... the industry wants that to be done in a transparent way," the source said.

A spokesman for London Gold Market Fixing declined to comment on the matter.

CME Group and Thomson Reuters were last week named as the new operators of an electronic silver benchmark that will also include an increased number of participants, in a move that was widely seen preceding sweeping reforms of precious metals price-setting.

The London Bullion Market Association, which acted as a facilitator in the process to find new governance for the silver market, declined to comment.

"The LBMA did a very good job in the way in which they looked at the methodology (for) silver," Jonathan Spall of G Cubed Metals Ltd., which conducted an independent review for the LBMA as part of the selection process, told the Reuters Global Gold Forum on Wednesday.

"The market was engaged throughout the process. If the gold market decides to go a similar route then it is a pretty good plan to follow. I believe it has legitimacy by having such widespread involvement."

Another source close to the matter said that the LBMA could again be involved in some ways to facilitate a new solution for a reformed gold benchmark.

"It is inevitable that what happened for silver is likely to happen for gold at some point," the second source said. "It is possible and it would make sense that the LBMA is again involved in finding a new administrator for the gold fix."

Bank of Nova Scotia, HSBC, Societe Generale, and Barclays operate the gold fixing, while Deutsche Bank stopped in May after two decades.

The scrutiny by regulators across Europe and the United States on financial benchmarking processes started at individual banks after the Libor manipulation case in 2012, for which firms have been fined billions of dollars.

Appearing before the UK Treasury Select Committee earlier this month, David Bailey, head of markets infrastructure and policy at the Financial Conduct Authority, said collusion among banks in setting the gold price benchmark was possible but there is no evidence of this.

And although market participants view many aspects of the existing gold process favorably, reforms still need to comply with the 19 principles on financial benchmarks outlined in July 2013 by the International Organization of Securities Commissions, an umbrella body of market regulators.

The first phase of the IOSCO principles, which all benchmarks should follow, ends in July.

IOSCO has six months to decide if any further action is appropriate, based on the take-up of the benchmark administrators to these principles, a source close to the regulator said.

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A statement on reforming the century-old system of benchmarking gold prices is expected imminently ahead of the implementation of new regulations governing financial benchmarks, a source familiar with the matter said on Wednesday.
gold, fix, London, Libor
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2014-41-16
Wednesday, 16 Jul 2014 09:41 AM
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