Any solution to the administration of the London Bullion Market Association Silver Price would have to be far removed from the one left behind by CME and Thomson Reuters, with central clearing essential, market participants said this week.
Last Friday CME and Thomson Reuters said they were stepping away from the calculation and administration of the settlement, following a review of the benchmark.
CME and Thomson Reuters have been operating/administering the LBMA Silver Price since 2014.
Speaking to S&P Global Platts ahead of the official release, sources close to the situation said CME and Reuters opted to give up their respective duties of the price management due to internal differences.
The LBMA will shortly be launching a new tendering process to identify an alternative provider to operate and administer the auction process.
LME already operates the LBMA Platinum/Palladium benchmarks while IBA, part of ICE, administrates the LBMA Gold Price.
It is widely expected in the market that one of these two exchanges will pick up the tender, sources say.
Many have called for the LBMA Silver Price to be centrally cleared to boost participation.
A producer source recently said steps were being taken by CME to clear the price discovery mechanism centrally before the announcement to step down.
Back in February 2016 Reuters said that the Silver Price could be suspended if the auction went into free-fall from the spot price.
However, the "circuit-breaking" mechanism wasn't enough for producers adversely affected by any issues with the settlement, with concerns continuing.
Sources agreed that the main issue was the lack of participation in the number, and the fact that the banks involved have been scared off by regulation and therefore don't have the willingness to step in if the price does disconnect -- in case of increased scrutiny.
A senior banker said central clearing would make sense for the silver price, owing to the lack of participants and the more industrial nature of the metal.
A senior source agreed: "I don't think anyone would want it [silver price] in its current form. It needs a minimum to be cleared to attract further participation." Both the LME and ICE are in the process of launching precious futures contracts.
LMEprecious is set to launch June 5 while ICE's contract, centered around its administration of the LBMA Au Price, is due this month although has encountered resistance owing to the fact it would fall under US jurisdiction and thus CFTC regulatory controls.
"The LBMA is seeking a London-based solution, I think this could play out well for the LME," said one gold broker.
Another senior source said that, "I think the battleground will be about who's the best clearer."
Current participants are China Construction Bank, HSBC Bank USA NA, JPMorgan Chase Bank, Morgan Stanley, The Bank of Nova Scotia - ScotiaMocatta, The Toronto Dominion Bank and UBS AG, according to the LBMA website.
"However, I think anyone that gets the number will encounter similar issues, it's a tough one," a second banker said.
