World Gold Council Considers Launch of New London Exchange

House · Apr 3, 2015

The gold industry's leading trade body and half a dozen banks have agreed to explore the idea of establishing an exchange in London as the existing market faces greater regulation.
The World Gold Council, a group consisting of 19 gold miners, and at least five banks are participating in initial discussions, according to people familiar with the matter.

That could see a move from London's bilateral over-the-counter gold market, which has been criticised for its lack of transparency, to a centrally cleared market. The WGC has hired a number of consultants and spent the past six months pitching a business case for banks to consider the alternative trading infrastructure, the people said.

The London gold market, whose members trade with each other directly or on behalf of global clients such as central banks and jewellers, moved to an electronic system of fixing the daily price last month, replacing an auction run between a group of banks that started in 1919. The new benchmark came under the regulation of the UK's Financial Conduct Authority on Wednesday.

The change comes as London's market faces increasing competition from gold futures traded on the New York Mercantile Exchange's Comex market, as well as the Shanghai Gold Exchange. Shanghai's exchange opened its bullion contracts to foreign investors in February.
European authorities are also set to conclude their final review in the coming months of the Markets in Financial Instruments Directive (Mifid II), the region's flagship markets legislation. Regulators want to increase transparency, clamp down on speculation and guard against systemic risk across equity, fixed income and commodity markets

The UK is also carrying out a review of its fixed income, currency and commodities markets led by the Bank of England, with recommendations due in June.

"As the market development organisation for the gold industry, our overriding aim is to encourage a transparent, efficient and liquid gold market," the WGC said in a statement. "We are constantly exploring potential market development initiatives, so it is in the normal course of business that we are engaged in discussions with a number of individuals and organisations regarding the operation of the global gold market
London's over-the-counter gold market does not require members to provide data on turnover, making it impossible to assess the volume of trades.

The London Bullion Market Association says the current system provides confidentiality and ensures risks stay between the two counterparts of the transaction.

Some banks remain reluctant to support the initiative. Moving it on to an exchange would be difficult since delivery of gold can happen in vaults around the world, even though the transaction is settled and cleared in London, according to market participants. It is also not clear how the London market would be regulated under Mifid II, they say.

But a switch towards a more transparent exchange-based system could provide protection against regulatory fines and investigations that have in recent years raised the compliance cost of transacting in precious metals. Banks had to spend considerable time getting compliance approval before they could participate in the new gold fix.
Barclays was fined 26m last year for allegedly seeking to rig the old gold fix.
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World Gold Council Considers Launch of New London Exchange

House Well-Known Member Silver Stacker

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World Gold Council Considers Launch of New London Exchange

House Well-Known Member Silver Stacker

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