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Silver pricing moves into digital domain

London, Aug. 17: Computers have fixed prices in most financial markets for more than a decade, but last week silver finally yielded to the digital age when the benchmark value of the precious metal was set electronically for the first time in its 117-year history.

The London Silver Fix held its final conference call on Thursday, the last time the price of the metal will be set by telephone, as the London Bullion Market Association kicked the trade in silver firmly into the 21st century.

Computerised auctions and electronic compiling of buy and sell orders will from now on set the price of silver, with the LBMA keen to show that it is responding to concerns about the ability of banks to rig prices.

The hurried transition to the new system meant that only three banks took part in the first electronic fixing — HSBC, Mitsui & Co and the Bank of Nova Scotia — though the LBMA said it expected more to join soon.

The silver fix is used to give a daily snapshot of the price of silver and was previously set through a call involving the main banks trading in the metal.

On the call, the banks would say where they were seeing customers buying and selling silver, and once agreement was reached on a level that all participants believed reflected the price in the market, a fix would be established.

The LBMA’s dumping of the antiquated setting comes after calls for a more transparent process and amid increased scrutiny of financial benchmarks after the revelations since the financial crisis of Libor-rigging and more recently the potential manipulation of currency markets.

A lawsuit has been filed in the United States alleging that banks involved in the silver fix, including Deutsche Bank and HSBC, have abused their role. Deutsche Bank has withdrawn from the silver and gold price-fixing process. All the banks named in the lawsuit have denied the claims.

CME Group, the owner of one of the world’s largest commodities exchange, will provide the trading systems on which silver auctions will take place, while Thomson Reuters, the data provider, has been appointed the administrator of the new setting process.

Ruth Cromwell, the chief executive of the LBMA, described the three-month reform of the silver market as “intense”.

 
 
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