Platinum to Palladium Fixings Join Precious Metals Revamp

Jul 31, 2014 6:37 am ET

(Updates with lawyer comment in penultimate paragraph.)

July 31 (Bloomberg) -- The company that runs platinum and palladium fixings in London is seeking a new administrator for the price-setting process after similar changes were proposed for rituals in gold and silver.

The London Platinum & Palladium Fixing Company Ltd. will “shortly” start a request-for-proposals exercise for firms interested in assuming responsibility for the procedure that takes place each business day at 9:45 a.m. and 2 p.m. by phone, it said today in a statement. BASF Metals Ltd., Goldman Sachs Group Inc., HSBC Holdings Plc and Standard Bank Plc conduct the fixings, the London Platinum & Palladium Market website shows.

The banks conducting the century-old fixings for gold are already looking for a third-party to run that benchmark and a similar process for silver will be replaced by an electronic, auction-based mechanism run by CME Group Inc. and Thomson Reuters Corp. next month. Precious metals are getting more attention from regulators after price-rigging in everything from interbank lending rates to currencies led to fines and overhauled financial benchmarks.

“With both the silver and gold fixings undergoing important structural change, it certainly makes sense for the London platinum and palladium fixing company to reconsider its own fixing process as well,” Nic Brown, head of commodities research at Natixis SA in London, said today by e-mail. “Reform of the fixings should help to reinforce confidence in the structure of London’s precious metal markets.”

Submitting Interest

Expressions of interest to run the palladium and platinum fixings should be submitted by Aug. 6 and agreements are being finalized for an “experienced” independent consultant to chair the fixings, the London platinum company said.

Platinum was fixed at $1,476 an ounce in London this morning and palladium’s rate was set at $880 an ounce. Platinum and palladium, up 7.8 percent and 23 percent this year, are mostly used in catalytic converters to curb harmful emissions from cars.

During fixings, members declare how much metal they want to buy or sell for clients as well as their own accounts. Traders relay shifts in supply and demand to clients and take fresh orders as the spot price changes, before the fix is made. Participants can trade the metal and its derivatives on the over-the-counter market and exchanges during the calls.

Platinum and palladium fixings started in 1989 after expansion of so-called quotations, forerunners of the benchmarks, which were introduced first in 1973. Fixings, used by miners to central banks to trade and value metal, date to 1919 for gold and 1897 for silver.

Silver Mechanism

The new mechanism for silver will start on Aug. 15 after Deutsche Bank AG’s planned withdrawal would leave just HSBC and Bank of Nova Scotia to conduct fixings for that commodity. The German lender’s exit from the gold process this year as it scales back its commodities business left Bank of Nova Scotia, HSBC, Societe Generale SA, and Barclays Plc to conduct gold fixings.

The London Bullion Market Association said on July 11 that CME Group and Thomson Reuters will run the replacement for the silver fixing. The London Metal Exchange, Autilla Ltd., ETF Securities Ltd., Intercontinental Exchange Inc., Bloomberg LP and Platts had also proposed alternatives. The LBMA will seek proposals next month for a new administrator for the gold ritual and plans to complete the process by year-end.

Aelred Connelly, a spokesman for LBMA, declined to comment on the association’s role in the platinum and palladium request- for-proposal exercise.

FCA Fine

The U.K.’s Financial Conduct Authority in May fined Barclays after a trader sought to influence the gold fix in 2012, and the regulator has been visiting member banks involved in the gold fixing this year as part of its review of gold benchmarks, a person with knowledge of the matter said in April.

A supervisory committee has been formed to oversee the platinum and palladium fixing process until a new administrator is appointed, according to today’s statement. The fixing company will be talking with the FCA and other stakeholders. After completing a review of the process, the fixings are “broadly aligned” with International Organization of Securities Commissions principles, it said.

Guidelines for financial benchmarks designed to improve integrity and reliability in the wake of the Libor scandal were published by IOSCO last year. The principles cover issues of governance and methodology, with one of the key recommendations the use of “observable transactions” as the basis of a benchmark.

Investigations into the manipulation of the London interbank offered rate, or Libor, ISDAfix, and the foreign- exchange market has led to global scrutiny of benchmarks. U.K., U.S. and European Union regulators have levied more than $6 billion in fines and 17 people are facing prosecution over the Libor allegations.

“Regulators around the world have agreed and encouraged the key markets to comply with the IOSCO principles, which is forcing what had previously been somewhat private processes to become far more public,” said Rob Moulton, a London-based lawyer at Ashurst LLP. “In light of Libor that’s the inevitable direction of travel.”

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--With assistance from Suzi Ring in London.