London silver fix to end as Libor scandal tarnishes trust in the City

By Xan Rice in London

It was born in the late 19th century when a handful of London bullion dealers agreed to meet daily under a cloud of cigar smoke to set the price for the “devil’s metal”. But now, after 117 years of operation, the London silver fix – an integral part of the city’s $1.6tn-a-year silver market – is on its deathbed.

The three banks that arrange silver’s global benchmark yesterday said prices would be “fixed” for the final time atnoon on August 14. The move comes on the heels of increased scrutiny by European and US regulators into precious metals price-setting following the Libor scandal and the probe into possible forex market abuse.

Deutsche Bank last month resigned its seats on the silver and gold fixes, after failing to find buyers, leaving just HSBC and Bank of Nova Scotia on the silver fix.

The three banks said there would be talks “to explore whether the market wishes to develop an alternative” to the benchmark. Reference prices could be derived from the futures or over-the-counter silver markets, while the London Metal Exchange could step in.

Market participants said the fixing process, which allows miners, financial institutions and jewellers to trade silver and value their stocks and contracts, could not function properly with fewer than three members. The UK’s Financial Conduct Authority asked Deutsche Bank to stay on for an extra three months to help wind the benchmark down.

The regulatory attention has removed the lustre from the precious metals fixes, while legal action in the US has been a deterrent for potential new members. US lawyers have filed at least 20 class lawsuits alleging manipulation by the banks responsible for the gold fix. Claims of abuse by bankers in the silver futures market led to a five-year probe by the US Commodity Futures Trading Commission, which found no evidence of wrongdoing.

The demise of the silver fix will raise questions about the future of other precious metals benchmarks – platinum, palladium and, especially, gold. Following Deutsche Bank’s withdrawal, the gold fix can continue to operate with four member banks, but critics say the process needs to be overhauled.

“There will now be pressure on the gold fix to make clear its utility,” said Brian Lucey, a professor of finance at Trinity College, Dublin. (FT)