By Henry Sanderson
Financial Times, London
Friday, August 19, 2016
http://www.ft.com/cms/s/0/b9805af6-653b-11e6-...f0bddad227.html
The body charged with regulating London’s $5 trillion a year gold market
says banks in the city are backing its plans to bring greater transparency to
the market as the London Metal Exchange prepares to launch a gold futures
exchange.
Ruth Crowell, head of the London Bullion Market Association, said its
members, which include some of the world’s biggest banks, see an electronic
trade repository as the best way to improve transparency and address
regulatory pressure that is threatening to drive up costs.
"The large majority of the membership have indicated this is what
they’d like to do, it’s sensible, it’s the right approach," she said.
Her comments come a week after a consortium — which includes the LME,
World Gold Council, and Goldman Sachs — unveiled plans to bring the trading
of precious metals in London on to an exchange early next year.
The move is the biggest shake-up of the gold market for decades. London is
the world’s largest physical bullion market with its vaults used by many
foreign central banks to hold their reserves.
The Goldman-backed consortium faces opposition from HSBC and JPMorgan, the
two big bullion banks that want to maintain the current system where gold is
traded privately between buyer and seller. The LBMA, which was set up by the
Bank of England in 1987 to regulate London’s bullion market, is also not
involved in the initiative.
"We are trying to give members something that helps them grow their
business in a more vibrant market place -- not an extra burden," said
Mrs Crowell in her first public comments since the rival initiative was
announced.
The LBMA’s own electronic platform is due to be announced at the body’s
conference in Singapore in late October. It will start as a trade repository
that will be able to link to outside clearing houses or exchanges if there is
demand, according to Mrs Crowell.
"Ultimately we’re looking at bringing a lot of services that
exchanges offer but we’re not looking to become an exchange," she said.
A trade repository will also provide more information on the size of the
London gold market that can be put before regulators. A lack of granular data
had made it difficult for banks to argue gold is a highly liquid market that
should not be subject to more onerous rules.
Since the financial crisis, policymakers have been pushing for a shift in
markets in general towards trading assets on exchanges and clearing
transactions through centralised systems.
The LBMA, which has 149 members, is lobbying the European Commission and
the Basel Committee on Banking Supervision for a reduction in a proposed rule
that would force banks to hold higher amounts of capital against their
activities in the bullion market. It argues that gold should be treated
differently from other commodities because it also acts as a currency.
A rise in the ratio to a proposed 85 per cent could cause banks to exit
gold trading, said Ms Crowell.
