* First of series of precious metals benchmark overhauls
* Not all interested participants ready by Friday -LBMA
* Will take form of online 'equilibrium auction' (Adds fix history, London market size, new participants)
By Clara Denina and Jan Harvey
LONDON, Aug 15 (Reuters) - The silver market enters a newelectronic era in benchmarking on Friday after a regulatorydrive for more transparency in price setting brought the117-year-old silver 'fix' to an end.
The final conference call took place on Thursday betweenbanker-dealers in the $3 billion a day London silver market inthe old process of fixing the benchmark silver price.
Driving the change has been the increased scrutiny ofprecious metals 'fixes' by European and U.S. watchdogs in thewake of benchmark manipulation in other financialmarkets.
The fixing of the silver price in London started in 1897,predating the gold process by 22 years, in the offices of Sharps& Wilkins, and also involving Mocatta & Goldsmid, Pixley & Abelland Samuel Montagu.
At that time, the cash price of silver was 27-9/16 oldpennies. At 1009 GMT on Friday, the silver price insterling terms stood at 11.91 pounds per ounce.
It was only in 1999 that it became a telephone process, withHSBC, Deutsche Bank and Bank of NovaScotia-ScotiaMocatta as fixing members.
The new price mechanism is not only electronic,auction-based and auditable; it is also tradable with anincreased number of direct participants.
The process will be operated jointly by the ChicagoMercantile Exchange, which provides the platform andalgorithm, and administrator Thomson Reuters.
The London Bullion Market Association (LBMA), which acted asa facilitator in the quest to find an alternative to thebenchmark, will publish on its website volumes and participantsof each daily settlement.
The LBMA said on Friday that three price participants havebeen accredited to contribute to the benchmark from Aug. 15 -HSBC Bank, Mitsui & Co Precious Metals Inc and The Bank of NovaScotia.
While a number of banks, trading houses, refiners andproducers have expressed interest in contributing, "the tightschedule and the time of year has imposed time constraints onsome potential participants seeking internal sign-off on thenecessary credit, legal, compliance and IT requirements", theLBMA said.
"This means that not all those who have already participatedin the live trials will be accredited in time to participate on15th August," it added.
At its silver price webinar in July, the CME said that "forday one participation, we are looking at the LBMA market-makerswith consistent and constant bilateral credit facilities".
Eleven institutions are LBMA market makers for gold andsilver. Credit Suisse said on Thursday that it wouldbe taking part in the new process, while UBS said inan email that "it is currently evaluating the feasibility ofbecoming an auction member in the near future".
Societe Generale, JPMorgan, Bank ofAmerica-Merrill Lynch, Deutsche Bank and Barclays declined to comment on whether they will be involved inthe process. Goldman Sachs did not respond to a requestfor comment.
HOW IT WORKS
The new benchmark - used by producers, consumers andinvestors - will be set every day at noon, but as an online"equilibrium auction" that will be conducted over multipleauction rounds.
Like the old process, it will start with a price thatreflects the spot market level. Then within each round of theauction, participants will enter their buy and/or sell orders,which will be compared at the end of each round to determine ifthe market is balanced or not.
To be balanced, the total of buy versus sell orders enteredby all market participants need to be within a certaintolerance, which is initially three lakhs, or 300,000 ounces.
If the market is not balanced, a new suggested price isautomatically calculated (moved up or down on the side of theimbalance) and a new round begins at this price.
If the market is balanced, the LBMA Silver Price isdetermined, and market participants then execute trades based onthe buy/sell orders they entered in the last round and anyat-market orders entered.
The operator and administrator will have full transparencyabout the names during the auction process, but participants,who can change the size of their orders at any time, cannot seethe names of others.
The overhaul of the silver fix process is the first in aseries of revamps of all precious metals benchmarks, includingthe century-old gold fix and the platinum and palladium fixes,whose operators earlier this month said were looking for a newadministrator.
Some of the companies that had proposed alternatives to thesilver fix said they would send their tenders for the goldmarket, when the request for proposals process starts at the endof August. (Editing by Veronica Brown, Jane Baird and David Evans)
Barclays (BARC)
HSBC Holdings (HSBA)
