The Beginning Of The End Of Precious Metals Manipulation: The London Silver Fix Is Officially Dead

Tyler Durden's picture

Following a crackdown on precious metal manipulation by various European regulators (mostly Germany's BaFin, recall "Precious Metals Manipulation Worse Than Libor Scandal, German Regulator Says"), which led to the shocking outcome that Deutsche Bank would pull out of the London gold and silver fixing committees, the London Silver Market Fixing company ended up with a most curious outcome: it would have just two members: HSBC and Bank of Nova Scotia. And, as an even more shocking result, overnight the London Silver Fix announced that after August 14, 2014 it will no longer exist - the first of many victories for all those who have fought for fair and unmanipulated precious metal markets.

From the press release:

The London Silver Market Fixing Limited (the 'Company') announces that it will cease to administer the London Silver Fixing with effect from close of business on 14 August 2014. Until then, Deutsche Bank AG, HSBC Bank USA N.A. and The Bank of Nova Scotia will remain members of the Company and the Company will administer the London Silver Fixing and continue to liaise with the FCA and other stakeholders.

The period to 14 August 2014 will provide an opportunity for market-led adjustment with consultation between clients and market participants.

The London Bullion Market Association has expressed its willingness to assist with discussions among market participants with a view to exploring whether the market wishes to develop an alternative to the London Silver Fixing.

Q&A

1. What will happen after 14 August 2014? Will the Silver Fixing cease to exist?

With effect from the close of business on 14 August 2014, the Company will cease to administer a Silver Fixing, and a daily Silver Fixing Price will no longer be published by the Company.

2. What will happen in the period up to that date??

The Company intends to continue to administer the daily Silver Fixing and publish Silver Fixing Prices throughout that period.

3. Why a three month notice period?

Although members of the Company may resign on seven clear days' notice, the members have confirmed that they stand ready to continue the Company's operations until (and including) 14 August 2014.

4. What happens after 14 August 2014 for market participants with contracts referencing the Silver Fix?

The Company is not in a position to comment on such matters, but market participants can speak to their contractual counterparties.

5. What does this mean for the gold, and platinum and palladium fixing companies?

This decision relates only to the London Silver Fixing administered by the Company. The Company is not in a position to comment on other fixings

* * *

This huge loss for precious metal manipulators fixers was amusingly "explained" by the FT's John Dizard as follows: "The field may be more level, but there are not enough players left for a game." Mocking those who prefer unmanipulated markets, he said:

... once that satisfying self-righteous feeling passes, the dwellers on BaFin Island might want to consider whether they have helped create a level playing field without enough players for the game. So far, it would appear the significant beneficiaries of BaFin’s persuasion have been the less-than-systemically important dealers in international silver markets. While there will still be four participants in the London gold fix, the similarly structured 12pm London silver fix will now have only two participants, which common sense tells us means no real market at all.

Actually, it will mean no manipulated market by a handful of participants. It will also mean that going forward a much more transparent pricing mechanism will have to be adopted: once which relies on, gasp, the entire market, not just legacy firms that operated for decades out of Rothschild's wood-panelled London basement.

Of course, for Gizard, there is no manipulation:

Deutsche Bank will have withdrawn from participating in the ritual of setting a standard price for physical gold. While no wrongdoing by any of the gold-fixing participants has been proven legally, or even, I believe, convincingly demonstrated in econometric modelling, Deutsche apparently came under intense social pressure from its home regulator to withdraw.

Correct, because banks withdraw from lucrative operations due to "social pressure", not because they know full well some legal arm is about to crush an existing arrangement with elements of criminality. While we are delighted that Mr. Gizard will disagree, we are confident that after August 14 the price discovery model, while certainly not free from manipulation, most certainly originating from the BIS' Basel Offices, will be a far better one.

One can only hope that in the future all vestiges of gold and silver manipulation will eventually disappear resulting in what may be the first real price discovery of precious metals, absent central and commercial bank manipulation. 

It is the same FT that we go to for some additional color on today's stunning outcome:

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 – the global benchmark for the metal – is on its deathbed.

 

The three banks that run the auction announced on Wednesday that silver prices would be “fixed” for the final time at noon on August 14. The move follows increased scrutiny by European and US regulators into precious metals price-setting following the Libor scandal and probe into possible forex market abuse.

 

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

 

Market participants said the benchmark process, which occurs via teleconference and 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 allow for the benchmark to be wound down smoothly.

 

“Deutsche Bank has postponed its resignation from the London Silver Market Fixing from 29 April 2014 to 14 August 2014, at which point the benchmark will terminate,” the bank said in a statement on Wednesday.

In other words, the FCA - undoubtedly in conjunction with the Bank of England - pushed hard to keep the existing manipulation structure in place for three months, effectively against the will of the German regulator, and of Deutsche Bank itself which wanted to get out as soon as possible.

As for what happens after August 14, when the London Silver fix is officially gone, we can't wait to find out.

In the meantime, we are confident the existing members of the mirror fix, that of gold, will be scurrying under rocks to avoid all public exposure. We plan to spoil their plans later today when we profile just who they all are.

Finally, a reminder of what the once proud tradition of gold price fixing looked like back in the day.