The trading standard seeks to reduce the risk of volatility of the benchmark gold index

Gold bars are displayed in a gold jewelry store in the city of Chandigarh, northern India, November 4, 2009. REUTERS / Ajay Verma / File Photo

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LONDON, December 8 (Reuters) – A group of blue chip banks, financials and corporations have developed trade guidelines designed to boost auction activity that sets benchmark prices for gold and silver used around the world and make them more reliable.

Benchmarks are intended to be a fair and accurate snapshot of the rapidly changing cash market. But they sometimes deviate from the spot price, leaving buyers and sellers with unexpected gains or losses.

On October 29, for example, the afternoon gold benchmark was pegged at $ 1,769.15, $ 1.95 below the lowest level reached in the spot market this on that day, according to data from Refinitiv Eikon, costing sellers money and getting buyers a good deal.

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Jewelers, miners, traders and manufacturers around the world buy and sell gold worth hundreds of millions of dollars every day at benchmark auctions. Reference prices are also incorporated into supply contracts throughout the industry.

Large discrepancies have become rare, but are in part due to a more recent reluctance by banks that feed client orders into auctions to add or remove buy or sell orders to ensure that auctions stay close to market. spot market price.

After scandals over the setting of benchmarks such as LIBOR, many regulators feared this was price manipulation.

The Fixed Income, Currencies and Commodities Markets Standards Board (FMSB) – a group of big banks, asset managers and other companies that claim to aim to make markets more transparent, fair and efficient – wrote a ” standard ”explaining when it is appropriate for banks to change orders during auctions.

He says: “This standard is designed to provide some clarity … to increase the volume of auctions and bids submitted to LBMA (benchmark) auctions and to improve the quality of the resulting price discovery. . “

The FMSB, which has no regulatory authority, said it intended to publish the final standard in December.

The gold and silver benchmarks suffered many significant divergences around 2016 and 2017, when only ten companies – including nine banks – participated in the gold auctions and seven – all banks – participated. silver auction.

Eighteen participants are now channeling orders to gold auctions, eight of which are not banks but other trading companies. Fifteen companies participate in the silver auction, eight of which are not banks.

“I think that’s not really a problem anymore,” said an executive at a major bank involved in the benchmarks. But he said his bank could start negotiating auctions more flexibly, and others could do the same, improving liquidity.

The gold and silver benchmarks are managed by the ICE Benchmark Administration (IBA), a unit of the Intercontinental Exchange (ICE) (ICE.N), on behalf of the London Bullion Market Association (LBMA), a professional association.

“LBMA, IBA and market participants are satisfied that there is currently sufficient continuous liquidity to ensure that all precious metal auctions continue to perform well,” they said.

Participants in the gold benchmark are Bank of China (601988.SS), Bank of Communications (601328.SS), Citibank (CN), Coins’ N Things, DRW Investments, ED&F Man, Goldman Sachs ( GS.N), HSBC (HSBA.L), Industrial and Commercial Bank of China (ICBC) (601398.SS), Jane Street, JPMorgan (JPM.N), Koch Supply and Trading, Koch Commodities Europe, Marex Spectron, Morgan Stanley (MS.N), Standard Chartered (STAN.L), StoneX (SNEX.O) and TD Bank (TD.TO).

Marex said he was happy with the cash flow but would welcome any increases. The others declined to comment or did not respond to requests for comment.

The FMSB guidelines also apply to the benchmark prices for platinum and palladium set at daily auctions held by the London Metal Exchange. The LME said it was “completely satisfied” with the benchmarks but welcomed the FMSB standard.

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Reporting by Peter Hobson; Editing by Kirsten Donovan

Our Standards: Thomson Reuters Trust Principles.


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