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By Clara Denina and Jan Harvey
LONDON, May 16 (Reuters) - London's precious-metal pricebenchmarks, including silver, the century-old gold "fix" andplatinum group metals are on the verge of major transformation,industry sources say, as regulatory scrutiny and lawsuits hastenaction.
Customers of the daily London silver fix, used as a globalbenchmark, were shocked this week when its operator said itwould stop administering the 117-year-old process on Aug. 14.
The move came after Deutsche Bank, a member ofthe gold and silver fix for two decades, failed to attract areplacement after putting its seat up for sale.
While the development looked abrupt to customers, watchersof the backdrop around benchmarks after the Libor rate-riggingscandal see change as inevitable.
"The future of benchmarks and how they are being puttogether is now in the balance," said Clive Furness, managingdirector of Contango Markets Ltd.
"I think it's essential that we have a set of proper,definitive guidelines for index creation and maintenance thatare accepted around the marketplace. Hearsay reporting onmarkets is not good enough anymore," he added.
In years gone by, seats at the gold and silver fixing tableswere a mark of distinction for a bullion bank, a sign that itsbusiness was deep and respected enough to take a hand in settingthe leading global benchmarks.
Those days are gone.
"The banks don't want any aggravation from currentregulatory scrutiny and they will drift away from it," a seniorgold trader said.
Before Deutsche's exit, other precious metals institutionshad pulled out of the benchmarking process, but had always founda buyer.
Increasingly, industry experts now believe regulatoryscrutiny of the remaining four gold fixing banks - HSBC, Societe Generale, Barclays and Bankof Nova Scotia - will also see them capitulate.
Barclays, Societe Generale, Bank of Nova Scotia and HSBCdeclined to comment on the future of the gold fix.
SEEKING A SILVER BULLET
A raft of regulators, including Bafin in Germany, Britain'sFinancial Conduct Authority and the U.S. Commodity FuturesTrading Commission have indicated that they're looking at thegold fix.
The way the fix and other commodity benchmarks are set wasbrought into the spotlight by the collapse of Libor (LondonInterbank Offered Rate), a central cog in the global financialsystem and the subject of a lengthy investigation.
With a wind-down of silver's price benchmark under way, theLondon Bullion Market Association (LBMA) is approaching miners,users of the benchmarks, regulators and potential administratorsto find a possible alternative before August.
The LBMA is also considering outsourcing the administrationof its gold forward offered rates to a third party as itprepares for the implementation of new benchmarking regulationsfrom the International Organization of Securities Commissions.
Banks arrive at the gold fix through matching buy and sellorders during a twice-daily telephone call, which miners,jewellers and central and commercial banks use to trade gold.
The same process is applied twice daily to platinum andpalladium, with a daily call on silver.
As the market searches for a replacement for the silver fix,technology providers and exchanges have also been investigatingways to offer a more transparent way of disseminatinginformation on the price-setting process, or a possiblesubstitute for it.
"We are working on an alternative proposal (to the silverfix) already," one technology provider said.
"It would still be an auction but rather than having afixing company, we could just operate it as a market-makersolution run through a daily auction on an electronic platform."
Large exchanges including the CME and London Metal Exchangehave also been mentioned as possible providers of an alternativeto the fixes.
Market watchers say a number of U.S. antitrust lawsuitsagainst the banks involved in setting the gold fix are alsopressing the case for change.
"I think the big issue now is the reputational risk that hasbeen done to the fixes as an equilibrium price," Sharps PixleyCEO Ross Norman said. (Additional reporting by Veronica Brown; Editing by VeronicaBrown and Dale Hudson)
