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Silver August 11, 2016 11:30:20 AM

WGC-LME joint venture to launch new gold and silver contracts in 2017

Paul Ploumis
ScrapMonster Author
The World Gold Council (WGC) and the London Metal Exchange (LME) have announced the launch of a new initiative to introduce new spot, options and future contracts in precious metals.

WGC-LME joint venture to launch new gold and silver contracts in 2017

SEATTLE (Scrap Monster): The World Gold Council (WGC) and the London Metal Exchange (LME) have announced the launch of a new initiative to introduce new spot, options and future contracts in precious metals. The gold and silver contracts are expected to be launched during the initial half of 2017, followed by contracts in other precious metals including palladium and platinum later during the year. The venture is also supported by market participants including Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis, OSTC and Societe Generale.

According to WGC officials, the new venture, LMEprecious, is considered as an important step towards modernization of the gold market. It will strengthen London’s position in the global gold market. In addition to meeting the needs of the existing participants, the launch is also expected to attract new players.

WGC stated that the design of the new service is the end-result of a series of discussions with major market participants and users. Inputs from various core market players have been incorporated to the best extend possible, it noted. The initiative has received strong support from a number of other leading institutions, with which discussions are in progress, WGC added. It further expressed the hope that it would be able to accommodate the interests of all market stakeholders before the release of the final product next year. The launch of the product follows a comprehensive process of integration and testing and is subject to necessary regulatory approvals.

Initially, LMEprecious will consist of spot, daily and monthly futures, options and calendar spread contracts for gold and silver. Platinum and palladium contracts will become part of the suite in future. The new product suite will offer market participants similar levels of market ability and execution flexibility as those offered by the bilateral over-the-counter (OTC) market. Moreover, all trading will be centrally cleared on LME Clear clearing house.

Garry Jones, CEO of LME noted that the company is extremely delighted in partnering with WGC and a group of banks to take the project forward so as to open new trading opportunities for existing and new LME members and their clients. The partnering banks will play the role of liquidity providers, he noted. Garry further stated that additional market participants are always welcome to support the initiative.

Meantime, market participants were not enthused by the announcement of the launch of new service. According to them, there is no guarantee on the success of the proposed contracts. They noted that LME’s previous attempt had resulted in a failure. Earlier in 1982, LME in partnership with gold industry participants had launched the London Gold Futures Market (LGFM). However, the market had to close after three years, following lack of interest by investors.

Further, the new product suite does not enjoy the backing of the London Bullion Market Association (LBMA). In fact, LBMA is said to be involved in separate attempts to bring in more reforms into London’s gold market, sources said. World Gold Council CEO Aram Shishmanian confirmed that it has had occasional conversations with LBMA on the subject. However, LBMA has reconfirmed that it has no direct or indirect involvement with LMEprecious. Further, LBMA has clearly stated that it has no current plans to get involved.

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