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EXCLUSIVE Banks put together to scrap LME gold and silver contracts, sources say

LONDON, Oct 13 (Reuters) – A gaggle of banks that partnered with the London Metal Exchange (LME) to launch gold and silver futures in 2017 is getting ready to desert the mission after hoped-for volumes didn’t materialise, three sources with direct information of the matter stated.

Such a transfer would finish an try by the LME, which dominates industrial metals buying and selling, to seize a part of London’s bullion market, which is the world’s largest with gold value some $17 trillion altering arms final 12 months.

The LME launched the contracts with companions together with Goldman Sachs (GS.N) and Morgan Stanley (MS.N), who agreed to advertise commerce in them in return for 50% of revenues generated.

The mission companions had hoped tightening regulation would push bullion buying and selling in London away from over-the-counter (OTC) offers between banks and brokers to exchanges, which regulators see as safer and extra clear.

But the most important sellers, which embody JPMorgan (JPM.N) and HSBC (HSBA.L), shunned the contracts, and after Societe Generale (SOGN.PA), one of many LME’s companions, closed most of its commodities enterprise in 2019, buying and selling dwindled to nothing.

Three sources at banks partnered with the LME stated they might meet in coming months. Two stated if nothing had modified they might pull out. The third stated it was clear the contracts had not been profitable and the LME deal was up within the air.

“There’s not been anyone who is keen on keeping it,” one of many sources stated, including that his financial institution was paying “a couple of hundred grand a year” to keep up the contracts and had thousands and thousands of {dollars} locked up in a default fund for them.

The take care of its companions had an preliminary time period of 5 years, LME chief govt Matt Chamberlain instructed Reuters. “It’s very possible they choose not to continue after 2022,” he stated.

Others that partnered the LME are ICBC Standard (601398.SS), (SBKJ.J), Natixis , proprietary dealer OSTC and the World Gold Council (WGC), an trade physique.

“The World Gold Council strongly believes in increasing transparency and investor accessibility to gold. This is why we support LME precious and will continue to collaborate across the industry on similar initiatives,” Mike Oswin, WGC’s world head of market construction and innovation, stated in a press release.

All of the banks concerned declined to remark. OSTC didn’t reply to a request for remark.

CRITICAL MASS

Although the contracts had a constructive begin, with 14.3 million ounces of gold value round $20 billion and 121 million ounces of silver value about $2 billion buying and selling on the LME in September 2017, exercise then started to fall.

In 2019 and 2020, a bullion worth rally pushed buying and selling in London and on New York’s Comex trade to document ranges, with a couple of billion ounces of gold altering arms in every venue in March 2020. The LME’s contracts haven’t traded since mid-2020.

Last 12 months, the LME’s companions wrote the worth of the mission down from $2.5 million to zero, the accounts of an organization arrange by the companions present.

“There wasn’t enough critical mass from banks who wanted the market to go on exchange and go cleared compared to perhaps some other banks who wanted it to stay OTC,” stated Chamberlain.

Despite the failure of the contracts, sources concerned in them and at banks that didn’t use them stated buying and selling in London was prone to ultimately go on trade as a result of that’s what regulators need.

“In a few years, someone will try this again,” one stated.

Reporting by Peter Hobson and Pratima Desai; Editing by Veronica Brown and Alexander Smith

An undated handout picture shows gold bars before their dispatch to Poland's central bank, in London, Britain. G4S via REUTERS 


Traders work on the floor of the London Metal Exchange in London, Britain, September 27, 2018. REUTERS/Simon Dawson//File Photo

An undated handout picture shows gold bars before their dispatch to Poland's central bank, in London, Britain. G4S via REUTERS