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Exclusive: Fear of Regulation Causes Big Swings in London's Silver Benchmark
By Peter Hobson and Jan Harvey
Reuters
Thursday, April 27, 2017
LONDON -- London's silver price benchmark is plagued by big, unpredictable fluctuations that risk undermining its credibility and may complicate efforts by the London Bullion Market Association to find a new operator, according to a Reuters analysis of trading data and 10 industry sources.
The benchmark is used by silver producers and consumers around the world, including jewelers and electronics firms, to price their contracts in the multi-billion-dollar a day trade.
The figure generated at noon London time is intended to be a fair and accurate daily snapshot of the wider, fast-moving "spot" market. However, it has diverged widely from the spot price on a number of occasions since at least January 2016, leaving buyers and sellers with unexpected gains or losses, according to the Reuters analysis using Thomson Reuters data.
Between January 2016 and March this year volumes have risen as high as 12.9 million ounces and fallen as low as 200,000 ounces, while on seven occasions the benchmark has diverged from the underlying spot price by 10 cents or more. It has diverged by more than 5 cents on more than two dozen occasions, including five times in late March alone. This is highly unusual as the average divergence for the electronic auction is about 1 cent.
At the core of the problem are low volumes and the unwillingness of seven banks that execute trading orders to add liquidity by buying or selling silver during the auction to ensure the benchmark stayed close to the spot price.
Traditionally banks did so, but many changed their approach after the scandal over the manipulation of the Libor interest rate benchmark, according to the 10 industry sources. Banks are now unwilling to intervene beyond putting in orders beforehand, fearing this might be construed as price manipulation by regulators, the sources said. ...
... For the remainder of the report:
http://www.reuters.com/article/us-silver-benc...-idUSKBN17T1...
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