Last updated on February 14, 2019
CME Group, alongside Thomson Reuters, has simplified and made more secure the silver price bench-marking system, it said.
The two parties jointly rolled out their new silver price bench-marking system on August 15 after winning the administration of the process in July.
“We’re very proud of what we have been able to accomplish in our partnership with the LMBA, Thomson Reuters and the silver market in such a short time,” Harriet Hunnable, managing director of precious metals at CME Group, said at a media briefing here on Wednesday.
“[To improve the system] we’ve done some simple things, like making it easier to see. The traders wanted to have bigger fonts, so we did that. But we also did technology work as it relates to security requirements,” she added.
Its main focus is to provide increased functionality to facilitate central clearing, CME also said.
“It became very clear when we went into silver that the bilateral settlement that it would be better for the marketplace to have central clearing, which enables a much wider group of participants to come in and transact,” Hunnable added. “It also means that they are transacting with each other, which means much less counter-party risk.”
Under the new rules, the price discovery takes place at noon London time via an electronic auction, with each auction round lasting 30 seconds.
An opening price is selected; participants then decide how much they would like to buy and sell at that price.
If the discrepancy between buy and sell orders is more than 300,000 ounces, the auction price will change and the auction will restart. Each time the auction restarts, it clears the order book entirely – any orders must be re-entered.
This process repeats until the buy and sell volumes are within that 300,000-ounce tolerance level, at which point the London Silver Price is set.
Amid tighter regulatory requirements for verifiable data, CME says that it will be able to show that not only were the trades agreed upon but they also were settled, giving total confidence that the price reflects true buying and selling, Hunnable said.
“In a very short time, we’ve taken a market that was doing this on pen and paper on the telephone to an electronic platform,” she added. “We have moved from a small group – we have almost doubled our participants that are signed up and active in the silver platform today.”
“This is the end of old club, so there’s no fixed number. The LBMA sets the criteria and we think it’s important that the level of participant goes up but we don’t take a view on that the right level might be,” she said.
JP-Morgan Chase Bank became the fifth accredited member of the silver pricing benchmark last week, alongside HSBC Bank USA, Mitsui & Co Precious Metals, The Bank of Nova Scotia-ScotiaMocatta and UBS AG.
CME Group/Thomson Reuters have also submitted a combined bid to the LBMA for the administration of the new gold price bench-marking mechanism, alongside seven other proposals. The LBMA hopes to make a decision next month, with the new system to be implemented later this year or early in 2015.
“The scale for gold is much bigger. So is the fact that we have been through a transition and we know that the technology works. We have set rules and we know the code of conduct. This will make the transition for gold much easier. This is proven and is the only ready platform,” Hunnable said.