It seems everyone is clamoring to provide a fix when the current collaborative bank-decided arrangement ceases after 117 years on August 14. According to Reuters, the front runner might be the London Metal Exchange in spite of it being mired in controversy, itself, over the warehouse debacle and resulting sky-high aluminum physical delivery premiums.
Admitting The Problem is the First Step
Recognizing the old system is broken is one thing, agreeing on what form the new system should take is entirely another. A new benchmark to set silver prices is certainly required and the London Bullion Market Association (LBMA) along with the wider silver market community is keen to see a system to allow daily prices to take shape.The LME has three proposals:
- The first is simply an alternative telephone-based arrangement, similar to the current three bank process in which HSBC, Scotia Bank and Deutsche Bank get together to negotiate a price where sellers are willing to sell and buyers are willing to buy and can be used as a reliable benchmark for contracts around the world.
- The second proposal is an extension of its open cry ring-based process as used for base metals, minor metals and steel billets, although the exchange acknowledges creating sufficient liquidity may be an issue as currently few of the ring dealers also have any significant exposure to precious metals.
- The third and preferred option of the silver users apparently is for an electronic auction-based system.
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