As silver fix decision nears, LME ties up with Autilla

Electronic system to replace 117-year-old method of conference calls likely to be named this week

PUBLISHED : Friday, 11 July, 2014, 1:31am
UPDATED : Friday, 11 July, 2014, 1:31am

The London Metal Exchange and technology firm Autilla teamed up on Wednesday to launch a last-minute bid to run the new global silver price benchmark in the closely fought contest to replace the 117-year-old London "fix".

Sources said the Autilla/LME proposal for an electronic system was up against a joint proposal from exchange operator CME and Thomson Reuters.

The London Bullion Market Association (LBMA), the industry body coordinating the search for a new mechanism, said on Wednesday the result of the high-profile process was likely to be announced by the end of the week. It had initially been due earlier this week.

The winner will operate a new daily silver pricing benchmark to replace the fix when it ends on August 14 as regulatory scrutiny of price-setting intensifies across markets.

The LME’s compliance and price discovery systems are market-leading

The LBMA has been consulting with market participants since May with the aim of producing a transparent electronic alternative to the conference call that complies with toughened regulatory standards.

"Throughout the LBMA's process, the market has consistently indicated that Autilla's technology and the LME's compliance and price discovery systems are market-leading," LME chief executive Garry Jones said.

The LME and Autilla, run by former brokers and traders from some of the fixing banks, had originally presented separate proposals.

The exchange had said it would use its LMESelect electronic platform, which was already available to LBMA market-makers such as JP Morgan and Societe Generale.

Members of the association, which include gold- and silver-fixing banks and other large bullion-trading banks, discussed the seven original proposals at a meeting last Friday, without reaching any decision.

The bid from CME and Thomson Reuters Benchmark Services had been considered a strong contender, sources said. Other bidders include US derivatives exchange Intercontinental Exchange (ICE), New York-based financial news agency Bloomberg, commodity price benchmark provider Platts, which is a subsidiary of McGraw Hill, and British-based exchange-traded funds provider ETF Securities.

The banks involved in the current silver-fixing process are Deutsche Bank, HSBC and Bank of Nova Scotia's ScotiaMocatta.

The LME currently provides clearing of over-the-counter silver forward rates in conjunction with London clearing house LCH.Clearnet, which are marked to market using the LBMA forward curve.

"The solution will be ready for testing from 14 July, with implementation and roll-out to begin in early August," the exchange said.

An electronic solution to the silver fix could be applied to price-setting for gold and platinum group metals as well, sources said.

The silver fix is set every day at noon by three banks via a conference call, working out a price at which their customers are willing to buy and sell the metal.