London Price “Fix” In Silver Market To End

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The process of three large European banks “fixing” the price of silver is set to end August 14, as one bank pulls out support.

Global benchmark for fixing price of silver could be structurally altered

According to a Wall Street Journal report the London Silver Market Fixing Ltd. said it would end administration of the process, known as the ‘fix.’  The London silver fix results in determining the global benchmark used by hedgers such as jewelers and miners to establish fair value for their deals. In many commodity markets a free exchange of traders determines the price.  In this instance, however, the benchmark is set via a daily conference call between Deutsche Bank, HSBC and Bank of Nova Scotia.

It was Deutsche Bank who requested to withdraw from the gold and silver fix, the Journal is reporting.  Large banks have been under severe scrutiny for involvement in influencing the price of commodities such as silver, gold, aluminum and oil as well as currency markets.  Deutsche Bank has agreed to stay on the fix while an alternative is being developed.  The Financial Conduct Authority, which regulates the banks, said it would “engage with the firms involved in the silver fix as appropriate, in line with our objective to protect and enhance the integrity of the U.K. financial system.”  The system could become more broad based in who determines “the fix.”  The London Bullion Market Association, an association representing diverse industry participants, has expressed its desire to assist with this process.

Commodity markets change, but fix remains resistant

While commodity markets have undergone significant technical and structural change, the silver price-setting processes date to 1897 and remains true to its original structure.  For its part HSBC Holdings plc (ADR) (NYSE:HSBC), one of the three banks involved in the fix, said in the report it remains “committed to the silver market and, if the market wishes to develop an alternative to the London Silver Fixing, is willing to take part in discussions with other market participants.”

The U.K. regulator, the Financial Conduct Authority, requested that all three banks remain on the panel for three months while a consultation process was undertaken, according to the report.

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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