TORONTO (miningweekly.com) – In a move to increase transparency and the number of direct market participants, the silver market on Friday adopted a new electronic price-setting mechanism.

The new electronic benchmarking mechanism 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 London Bullion Market Association (LBMA).

The new ‘LBMA Silver Price’ is a fully International Organisation of Securities Commissions-compliant solution for the London bullion market and was expected to streamline the dissemination of data to numerous data vendors.

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. Three price participants were accredited to contribute to the LBMA Silver Price of Friday, including HSBC Bank, Mitsui & Co Precious Metals and The Bank of Nova Scotia-ScotiaMocatta.

The LBMA in a statement noted that given the strong market engagement in the live testing and accreditation process, it fully expected the list of price participants to grow over the coming weeks as more participants met the formal requirements to participate in the LBMA Silver Price.

These potential participants included banks, trading houses, refiners and producers, who could not, given the tight schedule and time of year, meet the August 15 deadline. “Price participants were required to secure internal sign-off on the necessary credit, legal, compliance and information technology requirements. This means that it was not possible to accredit by August 15 all those who participated in the live trials and who are at various stages of satisfying the requirements for accreditation,” the LBMA explained.

HOW IT WORKS

The LBMA Silver Price is determined through an electronic auction-based solution that is based on transactions and is auditable. The LBMA Silver Price is set in a series of auction rounds with each round lasting 30 seconds. The auction begins at 12:00 GMT and participants input their buy volume and sell volume orders in lakhs (100 000 oz) or quarter lakhs (25 000 oz).

The initial price at the start of the process will likely be close to the spot price. In the first round the system algorithm will attempt to match buy and sell orders within the permitted tolerance level of three lakhs.

If the buy and sell orders are out of tolerance, the auction price will change and the auction will restart. The process continues until the buy and sell volumes are in tolerance and the equilibrium price is set.

The overhaul of the silver fix process was the first in a series of revamps of all precious metals benchmarks, including the gold fix and the platinum and palladium fixes, whose operators had earlier this month indicated that they were looking for a new administrator.