The silver fix, a 117 year old process by which the price of silver is set, will come to an end on 14 August 2014 following the announcement in January 2014 by Deutsche Bank that it would be withdrawing from both the gold and silver fixing panels. In light of the investigations into LIBOR and FX, and questions raised over the gold fix (see Gold Price Fixing – Is this the next banking scandal?), it would appear that banks are no longer keen to be involved in benchmarking processes that are perceived by some to be outmoded and susceptible to manipulation.
Last year US regulators conducted an inquiry into the silver markets and concluded there was no evidence of wrongdoing. However Deutsche Bank’s withdrawal from the silver fix panel leaves only Bank of Nova Scotia and HSBC to set the price. A panel of two was not felt to accurately represent the market, and with no bank willing to take Deutsche Bank’s place, the silver fix will end this summer. Four banks, Barclays, Société Générale, Bank of Nova Scotia and HSBC, remain on the gold fix panel, which will continue to operate.
Precious metals trade around the clock and there is no closing price meaning that traders and investors rely heavily on the silver fix, which is determined via a midday conference call between the panel banks. The end of the silver fix will not stop markets trading but will lead to increased uncertainty. Many traders are pessimistic about the future, seeing benchmark prices as crucial for the transparency needed to sustain the market.
The end of the silver fix leads to speculation over the future of other benchmarks. Many point to the reluctance of another bank to join the panel as a sign of the changing regulatory environment. Whereas in the past a seat at the gold or silver table would have been a prestigious position for a bank to hold, nowadays financial institutions appear to see the increased regulatory scrutiny involved in panel membership as off putting.
The London Bullion Market Association has opened a consultation on replacing the silver fix and states that it will work with market participants, regulators and potential administrators to consider the future of the silver market. The alternative to the silver fix will be keenly observed by the gold, platinum and palladium markets, with many speculating on the future of those benchmarks. In the wake of the LIBOR scandal and investigation into FX it seems that increased scrutiny on the process of setting benchmark rates and prices will lead to wholesale change and may spell the end to long-established methods of fixing prices. The aim of ensuring openness and preventing abuse is seen as paramount and will ultimately be the measure by which any future mechanism is judged.