From 20th March 2015 the historic London Gold Fix will be discontinued and replaced by the LBMA Gold Price.
Why does it matter?
The fix remains the global benchmark, used as a reference price by miners, central banks, jewellers and the financial industry to trade gold bars, value stocks and price derivative contracts.
Why is it changing ?
Critics have long charged that the fix process was opaque and vulnerable to market abuse.
In 2014 the FCA found that a Barclays trader had manipulated the London gold fix, and the British bank was fined £26m. That spurred calls for greater transparency at a time when banks globally were being fined for manipulating the London Interbank Offered Rate, another key benchmark, used to set the worldwide lending rate.
Since the fine, regulatory scrutiny has not gone away. US regulators are investigating at least 10 banks over precious metals trading and have subpoenaed HSBC, the bank said last month.
What is changing?
On 20th March 2015 the historic London Gold Fix will be discontinued and replaced by the LBMA Gold Price. ICE Benchmark Administration (IBA) will become the administrator for the “LBMA Gold Price”. IBA will provide the auction platform, methodology as well as overall independent administration and governance for the LBMA Gold Price. The LBMA will hold the intellectual property rights for the LBMA Gold Price.
What are the main features of the new process?
IBA will host an electronic auction process for the LBMA gold price. The auction process is independently administrated and tradeable, electronic and physically settled, conducted in dollars, with aggregated and anonymous bids and offers as well as being published on-screen and in real-time.
Will the LBMA Gold Price continue to be set twice daily?
Yes, the price will continue to be set twice daily at 10:30 am and 3:00 pm each business day.
Who will participate?
Initially six banks will take part in the electronic fix, including the four members of the traditional process. The other two are expected to be US banks.
The Intercontinental Exchange says it is looking for broad participation but fix participants need to be a member of the London Bullion Market Association. ICE is also in discussions with a number of Chinese banks.
Will the Gold Fixing Price and the LBMA Gold Price be calculated in parallel for a transitional period?
No. The last publication of the Gold Fixing Price will be on March 19, 2015. The first publication of the LBMA Gold Price will be on March 20, 2015.
What information will be available at the end of the auction process?
At the end of the auction process, IBA will publish the benchmark price. IBA will also publish a Transparency Report showing for each round: the price in USD; the aggregated bid and offer volume; the number of participants; and the timings for each round.
Is the LBMA Gold Price a regulated benchmark?
From 1 April 2015 the LBMA Gold Price will be a regulated benchmark, as it will become a ‘specified benchmark’ for the purposes of Art 63O of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.