LBMA, ICE BA turn focus to recruiting gold price participants

Nov 11, 2014 - 12:08 PM GMT

The London Bullion Market Association (LBMA) has already received interest from 13 banks or other firms looking to become direct participants in the new gold price benchmark auction.

“We’re now actively recruiting because the last thing we want is for everyone to be staring at a blank screen on that first day. Bringing participants on-board is our number one priority,” Ruth Crowell, LBMA chief executive, said on Monday at the association’s conference here.

It was announced last week that ICE Benchmark Administration (IBA), an independent specialist owned by the Intercontinental Exchange (ICE), will provide the price platform, methodology and overall administration for the new LBMA Gold Price. The new mechanism will now go into a testing phase before going live in the first quarter of 2015.

This will replace the century-old system where five banks would ‘fix’ the gold price twice daily on the telephone.

“We’ve been quite pleased with the response so far. During the consultation process, 11 companies came forward as prospective direct participants. And over the past two days we’ve heard from two more, bringing the total up to 13,” Finbarr Hutcheson, IBA president, said.

“Now there’s still a lot of work to be done between today and ‘go live’ in early 2015. We have to sit down with each of these firms to discuss credit requirements and regulations, so it’s quite possible that some might choose to drop out. But it’s just as possible that other firms might step forward,” Hutcheson said.

In terms of vetting prospective participants, Hutcheson said that IBA will notbe creating a clearing house right out of the gate.

“The starting point is that this will be a mutualised risk pool. We will look at everyone to make sure they can trade and settle with each other. We will review their positions and their credit lines,” Hutcheson said.

But as the benchmark grows bigger and more participants with varying credit worthiness look to come on-board, a clearing house might eventually become a possibility or even a necessity.

“This is a topic that we don’t feel too strongly about. But we understand that there are very passionate views both for and against clearing,” Hutcheson said.

“It does level the playing field and makes participation from a broad spectrum easier, but it also adds costs, especially for the larger players, who don’t really need this service. So this is a topic the [LBMA Gold Price] Oversight Committee will look at and discuss at some point down the road,” he concluded.

(Editing by Martin Hayes)