OPINION – New London Silver Price passes first test

Aug 15, 2014 - 2:56 PM GMT

Opinion pieces are the views of the author: they do not represent the views of FastMarkets

London 15/08/2014 – Credit where credit is due, the new London silver price auction process kicked off today as planned, ran without problems and secured the first new London Silver Price.


Cue a collective sigh of relief from thousands of market users, although I suspect it was less heartfelt than those involved in the process in the LBMA, Thomson Reuters and the CME.


So the good news is that we have continuity and a tradable benchmark price capable of ticking all the boxes that 21st-century officialdom requires.


That today was a success will be thanks to unknown and unthanked heroes of the hour, probably buried deep within these organisations. No doubt they burnt the midnight oil getting systems and agreements in place under very tight time constraints.


So this first test has been passed. But there are other tests that lie ahead for the nascent benchmark.


These include the embrace of the process by other participants and, crucially, the wider adoption by market users. A factor in this may be the degree to which large numbers get to observe the live auction process on screen rather than simply waiting for the final number.


This innovation, a natural by-product of an electronic auction process, should transform the fix from a closed-door affair – the stuff of a many an ill-informed conspiracy theory – to a vibrant and informative exposition of the ebb and flow of real world orders in a global market.


In volatile conditions, it could become compulsive viewing and draw the close attention of the silver trading world. This is potentially good for silver; potentially good for London as a trading centre too.


Today, however, only Thomson Reuters and perhaps one or two other vendors with deep resources who made the cut could share the full auction process with their customers. Minutes before today’s fixing process, the LBMA revealed that HSBC Bank USA, Mitsui & Co Precious Metals and the Bank of Nova Scotia-ScotiaMocatta had been accredited to take part. This illustrates a potential flaw in the arrangement.


A condition of Thomson Reuters’ involvement as a vendor (CME’s involvement as an exchange was far more natural) was that there would be a level playing field across vendors. The long-time advantage that Thomson Reuters had enjoyed in the world of precious metals market data by virtue of the hosted page system on their platform was no longer acceptable.


That Thomson Reuters is now charged with the commercialisation of the London silver price lays open the possibility at least of a conflict of interest.


Just as if the government had charged Vodafone with commercialising the 3G spectrum on their behalf, there must always be the temptation to gain competitive advantage from the position of administrator.


Along with other vendors, then, FastMarkets looks forward to bringing this new electronic era for silver to our customers as soon as possible.


I have every confidence in the professionalism of the good people we know at Thomson Reuters and I am sure that they will pass this test too by ensuring a level playing field.


You can hardly blame the company for jumping at the opportunity to administer the fix (in the interest of full disclosure: we would have loved to have done the same ourselves) but it was perhaps naïve of the LBMA membership to put it in this potentially conflicted position in the first place rather than selecting a demonstrably neutral party.


(Editing by Mark Shaw)