Door still open to LBMA to get involved with new LME contracts – sources

Aug 14, 2016 - 2:17 PM GMT

The door is still open to the London Bullion Market Association (LBMA) to join the World Gold Council and the London Metal Exchange in its new venture, due to be launched at the beginning of next year, sources told FastMarkets on the sidelines of the IIGC conference here in Agra.

With support from five banks and one proprietary trading house, the LME and the WGC announced on Monday their plans to launch new spot, futures and options contracts for gold and silver in the first half of 2017.

The most notable exemption from the announcement, however, was the lack of involvement from the LBMA, the main trade association that represents the $5 trillion per year OTC market in London and governor of the widely-recognised Good Delivery list.

FastMarkets understands, however, that should the LBMA wish to join the consortium of companies, the door is still very much open to them to get involved.

Although, the LBMA has insisted it has no intention to join the venture, instead looking to pursue with its series of RFPs aiming at market reform.

“The LBMA has had occasional conversations on this subject with the World Gold Council and the London Metal Exchange but reconfirms it has no direct or indirect involvement in this project, nor has any current plans to become involved,” a spokesperson told FastMarkets.

The LME has not traded precious metals since the 1990s. The exchange lost out in the race to administer the London gold fix in November 2014 – it is now in the hands of ICE. But it won the administration of the platinum and palladium price fixes in October 2014.

The LME’s only foray into gold futures trading dates back to 1982 when it joined gold industry participants to launch the London Gold Futures Market (LGFM).

But the lack of domestic and speculative investors caused the market to close within three years. LME’s credibility – regarding the exchange’s recent issues with fees, reducing volumes and movement of volume away to other exchanges – is a concern for some.

The obvious worry for many in the gold market, though, is the fact that the new suite of precious metals contracts – called LMEprecious – does not have the backing of the LBMA. Still, earlier this week, during an address to delegates, the LME’s head of business development Matt Chamberlain moved to quell fears that should the LBMA not join the venture, the two are more than capable of operating together, albeit at different sides of the table.

“Base metals is a market that has a very strong exchange presence from the LME, CME, SHFE and others, but it is also one of the markets that has the most well developed OTC side – I think they’re complimentary – it is the price discovery, transparent pricing and the price curve that you can generate on the exchange side that gives the OTC market the transparency and credibility that it requires, he said.

“It’s the huge volumes that are happening on the OTC world, some of which are later caught onto exchange or onto clearing, that drives liquidity on the exchange side, so I think they can work together,” he added.

(Additional reporting by Ewa Manthey, editing by Martin Hayes)