Last checked at 
By Peter Hobson
LONDON, Dec 8 (Reuters) - A group of banks, financial firms
and blue-chip companies has drawn up trading guidelines designed
to boost activity in the auctions that set gold and silver
benchmark prices used around the world and make them more
reliable.
The benchmarks are intended to be a fair and accurate
snapshot of the fast-moving spot market. But they sometimes
diverge from the spot price, leaving buyers and sellers with
unexpected gains or losses.
On Oct. 29, for example, the afternoon gold benchmark was
set at $1,769.15, $1.95 below the lowest level reached on the
spot market that day, data from Refinitiv Eikon shows -- costing
sellers money and gifting buyers a bargain.
Jewellers, miners, traders and manufacturers across the
globe buy and sell gold worth hundreds of millions of dollars
each day at the benchmark auctions. The benchmark prices are
also embedded in supply contracts across the industry.
Large divergences have become rare but are caused in part by
a more recent unwillingness among banks who feed client orders
into the auctions to add or remove buy or sell orders to ensure
the auctions stay close to prices in the spot market.
After scandals over the fixing of benchmarks such as LIBOR,
many feared regulators could see it as price manipulation.
The Fixed Income, Currencies and Commodities Markets
Standards Board (FMSB) - a group of large banks, asset managers
and other companies that says it aims make markets more
transparent, fair and effective - has drafted a "standard"
explaining when it is appropriate for banks to change orders
during the auctions.
It says: "This Standard is designed to provide some clarity
... so as to increase the volume of bids and offers submitted to
LBMA (benchmark) Auctions and improve the quality of price
discovery resulting from them."
The FMSB, which has no regulatory authority, said it aimed
to publish the final standard in December.
The gold https://www.reuters.com/article/us-gold-benchmark-idUSKBN18K2H6
and silver https://www.reuters.com/article/us-silver-benchmark-exclusive-idUSKBN17T1XS
benchmarks suffered numerous large divergences around 2016 and
2017, when as few as ten firms -- nine of them banks --
participated in the gold auctions and seven -- all banks -- took
part in the silver auctions.
Eighteen participants now funnel orders to the gold
auctions, eight of which are not banks but other trading
companies. Fifteen firms take part in the silver auctions, eight
of which are not banks.
"I don't think it's much of an issue anymore," said an
executive at a large bank involved in the benchmarks. But he
said his bank could begin trading the auctions more flexibly and
others may do the same, improving liquidity.
The gold and silver benchmarks are operated by ICE Benchmark
Administration (IBA), a unit of Intercontinental Exchange (ICE)
, on behalf of the London Bullion Market Association
(LBMA), a trade association.
"LBMA, IBA and market participants are satisfied that
currently there is ample ongoing liquidity to ensure that all
precious metals auctions continue to function well," they said.
The participants in the gold benchmark are Bank of China
, Bank of Communications, Citibank,
Coins 'N Things, DRW Investments, ED&F Man, Goldman Sachs
, HSBC, Industrial and Commercial Bank of China
(ICBC), Jane Street, JPMorgan, Koch Supply
and Trading, Koch Commodities Europe, Marex Spectron, Morgan
Stanley, Standard Chartered, StoneX and
TD Bank.
Marex said it was satisfied with liquidity but would welcome
any increase. The others declined to comment or did not respond
to requests for comment.
The FMSB guidelines also apply to the platinum and palladium
price benchmarks set in daily auctions run by the London Metal
Exchange. The LME said it was "entirely satisfied" with the
benchmarks but welcomed the FMSB standard.
(Reporting by Peter Hobson; Editing by Kirsten Donovan)
