TORONTO (miningweekly.com) – Several bullion dealers and analysts have in recent days voiced their opinions after the new London Bullion Market Association (LBMA) Silver Price was launched on Friday, arguing for increased transparency.

Bullion dealer Sharps Pixley CEO Ross Norman on Friday said “as a first effort they got a pass grade, but not an ‘A-star’ by a long mark,” in an interview with Business News Network.

He did, however, concede that the new electronic platform provided “some enhanced visibility” to the buying and selling inputs during the silver price fixing process, which could be tracked in real time. However, Norman decried the fact that the information was only available to a limited number of news wire services that often had hefty subscription rates.

“I think [LBMA Silver Price] information needs to be widely available on the Internet to improve transparency. It needs to be open to regular investors and should also disclose who is buying and selling to assist investors to better analyse market trends,” he stressed.

Norman pointed out earlier this month what might be construed as a conflict of interest for Reuters, as in order to follow the new silver setting process in real time, one needed to buy a subscription to the Reuters Eikon (or Elektron) platform, and given that Thomson Reuters was responsible for administration and governance of the new price setting process, they would also benefit from users signing up to these platforms to follow the silver auctions.

The new electronic benchmarking mechanism on Friday brought an end to the 117-year-old ‘London Silver Fix’, following increased regulatory scrutiny in the UK and the US.

The Chicago Mercantile Exchange Group (CME) and Thomson Reuters launched the new price mechanism in association with the LBMA.

The CME Group provided the electronic auction platform on which the price was determined and Thomson Reuters, as the LBMA Silver Price benchmark administrator, would be responsible for administration and governance. The LBMA would accredit price participants and own the intellectual property rights and the benchmark price would continue to be published and distributed by various data vendors, as well as on the LBMA’s website.

On Friday, the first LBMA Silver Price was set at $19.86/oz, followed by $19.59/oz on Monday. Three price participants were accredited to contribute to the LBMA Silver Price, including HSBC Bank, Mitsui & Co Precious Metals and The Bank of Nova Scotia-ScotiaMocatta.

PRICE DISCOVERY

With similar names re-entering the new silver pricing game, Money Morning’s resource specialist Peter Krauth was slightly discouraged, believing that, at least initially, the new fix would not allow for proper price discovery.

“It’s the same gang that a lot of observers feel are not necessarily doing this in the most transparent and free-market-price-discovery-orientated kind of way,” Krauth stated.

In the past, there was concern within the silver market that the three banks that determined the ‘silver fix’ in secret could have deliberately settled silver prices artificially low, despite an all-time high demand for physical silver in 2013.

Another analyst wanted to know why the LBMA seemed to have steamrollered through the new fixing platform with no apparent time limitation dictating that the platform needed to go live immediately.

On Friday morning, the LBMA published the names of accredited participants in the new process for the first time – only a few hours before the first auction was to take place.

Sharps Pixley’s Norman had been vocal about the impending new order for silver price fixing, having earlier this month said “it remains a mystery who will be taking the fix orders – with a deafening silence from market participants”.

“It is highly irregular that they have left the publication of the participants list until a few hours before the very first new silver price-setting process,” bullion trader GoldCore’s consultant, Ronan Manley, said in an opinion piece on Friday.

Norman also highlighted the “bizarre” change in the standard unit of a silver order in the new system, which had gone from $/oz to a unit of ‘lakh’ which was 100 000 oz.

The LBMA maintained that the new platform would increase transparency and the number of direct market participants.

HARSH CRITIQUE

Manley declared the entire process as having been “a bit of a shambles”.

He noted that the Gold Anti Trust Action Committee and those concerned about price manipulation would allege that the LBMA and the Western bullion banks were engaged in a “rebranding” and “repackaging” exercise to maintain a cosy gold and silver cartel of bullion banks and, ultimately, gain control over precious metal prices.

Analysts at boutique investment broker SP Angel, of London, last week said they had noted that banks appeared to have been reluctant to take up commodity trading following Barclays Bank’s £26-million fine by regulators for failings regarding the London Gold Fix.

“Banks are, in general, withdrawing from commodities on lower returns and on the potential risk of further regulator fines in our view,” the brokerage said in a note to clients.

Barclays was fined in May for failing to prevent manipulation of the gold price in London, almost two years after being hit with a £290-million fine for rigging the London Interbank Offered Rate.

Manley argued that nobody seemed to know how the new LBMA Silver Price system was administered and governed and how interested third parties in the market could see the auction in action without signing up to a proprietary Thomson Reuters system.

“It is difficult for the LBMA to claim that the new silver pricing process is transparent. Thomson Reuters need to be careful that they are not being used to rubber stamp the new LBMA silver pricing mechanism.

“Regulators need to look at the process and institute a new pricing mechanism and ensure that the price of silver is based on real physical precious metals supply and demand between government mints, refiners, miners, manufacturers, jewellers and of course investors,” he reasoned.

Further, as gold and silver moved East in unprecedented volumes, Western institutions were gradually losing their grip on the precious metals markets.

“The advent of new gold exchanges with physical gold settlement such as the new gold and silver exchanges in Dubai, Shanghai and Singapore would make price discovery more efficient and render price manipulation more difficult.

“The physical market and the natural forces of supply and demand will soon overcome the paper and digital gold markets,” Manley commented.