Intercontinental Exchange announced in a statement last Thursday that ICE Benchmark Administration (IBA) expects to launch the new London Bullion Market Association (LBMA) Gold Price, which will replace the long established London Gold Fix, on the 20th March 2015.
“The launch of the new LBMA Gold Price on 20th March means that all four precious metal prices will be on electronic auction platforms,” said Ruth Crowell, Chief Executive of the LBMA.
With a daily turnover of approximately $150 billion, gold is the largest of the precious metal markets. The new LBMA Gold Price will be set twice daily at 1030 GMT and 1500 GMT in Sterling, euros and US dollar currencies. The new benchmark will replace the Gold Fixing Price which has been in existence since September 1919.
The price of gold had historically been set daily in London by way of conference calls between four banks – Scotiabank, Barclays Bank, HSBC Bank, and Societe Generale. The price is ‘fixed’ in London twice a day and provides a published benchmark price for gold that is widely used as an international pricing medium by producers, consumers, investors and central banks.
The gold fix came under scrutiny as part of a wider examination of financial benchmarks in the wake of a global scandal involving the rigging of interest rates. In May last year, Barclays PLC was fined GBP26 million ($43.5 million) by the U.K.’s Financial Conduct Authority for lax controls after one of its traders manipulated the gold fix at the expense of a client. Gold and silver were included in the list of seven benchmarks that would be regulated by the Financial Conduct Authority (FCA) from April this year.
Finbarr Hutcheson, President, of the London based IBA said: “Under the administration of IBA, the new LBMA Gold Price will benefit from increased transparency, and the robustness of the data used to calculate the benchmark will give a better representation of the market price.”
As the administrator of the LBMA Gold Price, the IBA will operate a physically settled, electronic and tradable auction. The price formation will be in US dollars and participants will have the ability to settle orders in USD, EUR and GBP. Within the process, aggregated gold bids and offers will be updated in real-time with the imbalance calculated and the price updated every 30 seconds and prices will continue to be set at 10:30 and 15:00 in London. IBA will use ICE’s widely distributed trading platform, WebICE, as the technology which will allow direct participants, as well as sponsored clients, to manage their orders in the auction in real time via their desktops.
The IBA was established for the sole purpose of administering benchmarks and is now a wholly-owned subsidiary of the Intercontinental Exchange group (ICE). The Wheatley Review of Benchmarks concluded that there should be statutory regulation around LIBOR. Both administering LIBOR and making submissions to LIBOR became regulated activities from April 2013. As the new administrator for LIBOR, IBA became an authorised and regulated entity by the FCA in February 2014. In August 2014 IBA also became administrator for ISDAFIX, the leading global benchmark for interest rate swaps.
The LBMA press release is available here.
The IBA press release is available here.