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The silver market is poised to undergo a major shake-up, as the ancient method of setting a benchmark price is coming to an end.
Since 1897, the London “silver fix” has been negotiated each trading day at noon through an auction between bullion dealers. Remarkably, the process has endured despite all the evolutions in trading since then. Similar daily fixings continue to be set for gold, platinum, and palladium.
The silver fix is now dying because the banks that set the price don’t want to do it anymore, and no one else is rushing forward to take their place.
Last month, Deutsche Bank said it planned to give up its seats on the silver and gold fixes as it scaled back its commodity business. That left only two banks to determine the silver fix: Bank of Nova Scotia and HSBC. Now all of the parties have decided to withdraw, meaning the last fixing will take place on Aug. 14. All three banks will stay on until then.
The decision to end the silver fixing comes as regulators put more scrutiny on the fixing process amid concerns that it could be manipulated. That follows a scandal in 2012 over the manipulation of the London Interbank Offered Rate (Libor).
Regulators have not made any allegations of wrongdoing around the daily fixings of silver and other precious metals. But that has not stopped U.S. class action lawyers from filing multiple lawsuits that allege manipulation, mainly in gold fixing (a lawsuit over silver fixing was recently dismissed).
“It’s a decent system if everybody is playing above board. But it allows room for playing around, just as the lawsuits criticize,” said Nick Barisheff, head of Bullion Management Group Inc.
However, some experts say the main reason the banks have no interest in administering fixing now is that they are in the midst of massive cutbacks to their broader commodity units. Deutsche Bank, Barclays, J.P. Morgan, Morgan Stanley and others have announced plans to withdraw from much of their commodity activities.
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