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Joint Thomson Reuters/CME Bid in Lead for Silver Fix

By Neil Hume and Xan Rice
Financial Times, London
Wednesday, July 9, 2014

A joint proposal by Thomson Reuters, the data and news service, and exchange operator CME Group has emerged as the frontrunner to provide a new global silver price benchmark when the 117-year old London silver fix is disbanded in August.

However, it faces a last-minute challenge from the London Metal Exchange that has joined forces with Autilla, a technology provider, to table a revised bid.

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The move has delayed the announcement of a new method for providing a daily reference price for silver. The London Bullion Market Association, the industry body co-ordinating the search for a new transparent electronic mechanism, was set to announce the winner of the hotly contested process earlier this week.

While the LME's new proposal will be given a hearing because it comes from a "serious candidate," people familiar with the situation said it was unlikely to find favour with industry participants.

"This is complete about-turn by the LME and I would say it's too late," said one of the people.

The current fix is an auction-style process run by three banks that confer daily via teleconference. It allows miners, financial institutions, and jewellers to trade silver bars and value their stocks and contracts but is due to be abandoned on August 14.

The date was set earlier this year after Deutsche Bank failed to find a buyer for its seat on the rate-setting body -- leaving only HSBC and Scotiabank involved and effectively killing the fix. Market participants said the fixing process could not function properly with fewer than three members.

The LME is understood to have joined forces with Autilla after it became clear the exchange's original solution -- a closed auction process -- would not be selected. Many industry players are wary of this method because of the possibility that they will be able to fill only part of their orders.

Its new proposal is closer to the plan put forward by Thomson Reuters and CME, whose Comex exchange is already home to a widely traded silver futures contract.

This builds on the current fixing process such that the current volume match auction method is retained but an algorithm is used to set the opening price rather than a chairman from one of the banks.

The LME said its solution would be ready for testing next week and rollout in early August.

The hotly contested battle to provide a new daily reference price for silver -- seven solutions were put forward -- is being closely watched by market participants elsewhere in the precious metals industry.

Whichever organisation is chosen to run the new silver benchmark will also be in a strong position to take over the under-fire gold fix if the group of banks that operate this benchmark decide to phase it out.

The twice-daily gold auction is run by HSBC, Barclays, Soctiabank, and Societe Generale and has come under fire from politicians and academics who say the process is old-fashioned and opaque and needs to be overhauled.

In May the UK's Financial Conduct Authority fined Barclays, one of the fixing members, L26 million for poor controls after one of its traders used the auction to influence the gold fix to avoid paying out on a derivatives contract.

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