The London Metal Exchange is gearing up to publish intraday reference prices for its gold and silver contracts following the successful launch of LMEprecious on July 10, the exchange told S&P Global Platts Wednesday.
Post launch the market was "taken by surprise" by the amount of turnover on the new suite of contracts, sources said.
In an email an LME spokesperson said: "Following a number of requests from key precious metals market participants, the LME intends to publish intraday reference prices based on the volume weighted average price of each contract over a given one-minute period that complement the existing prices created through the daily price auctions."
The existing London Bullion Market Association Gold and Silver Prices are administrated by IBA, part of ICE.
The LME runs the LBMA Platinum and Palladium Prices.
Reaction to the news, of publishing reference prices, was generally positive this week.
"[It] makes a great deal of sense to me, so long as volumes on LMEprecious continues to grow," a senior banker said.
The LME had been in the running to pick-up administration of the LBMA Silver Price, but that tender ended up in the hands of ICE.
Regarding the secondary reference price, in essence another benchmark, a second banker said: "There's nothing stopping them [the LME]. It will be interesting to see how many people take it up. Offering it for free is a nice hook."
However, a third banker was more skeptical.
"I don't think it is that simple [adopting the new reference price]. The market has zillions of derivative contracts that are already written in reference to the the LBMA auctions...to change those agreements would take a long time."
He added that "volumes on LMEprecious for gold [are so far] impressive, on the surface [at least]. But try find out how many non-official LMEprecious market makers have traded the contracts, in other words: How many bullion banks that don't have a vested interest in its success?"
The LME, World Gold Council and six partners -- Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis, OSTC and Societe Generale -- developed LMEprecious following extensive engagement with major market participants and users.
The LME is confident that the new venture will prove an attractive one to market participants, the exchange's chief executive, Matthew Chamberlain, told Platts in a recent interview.
"Given the partnership, given the market interest, given the fact that we're in a space which is evolving, as we've seen, the factors are certainly there for medium-to-long term success," Chamberlain said.
"It doesn't mean we're going to judge it by what happens on day one, but we're confident that we've got a product that meets the emerging capital, regulatory and trading needs of the market," he added.
"The contracts were designed to support ongoing regulatory change, enabling greater market transparency and access, as well as providing additional robustness to the precious metals market," the LME said in partnership with the World Gold Council.
The LME has entered into contractual arrangements with the above entities such that "at any given time at least three of those entities will provide market making services, or price streaming, for gold and silver futures at agreed bid/ask spread and depth across the curve, for 80% of the time between 0800 and 1830 London time."
LMEprecious' volumes surged during the first week of trading, with gold clocking up a total turnover of 25,590 lots, equivalent to 2.6 million oz or 79.6 mt.
LME silver saw 2,556 lots (12.8 million oz or 397.5 mt) transacted.
LME gold and silver open interest also reached 9,380 lots and 2,253 lots, respectively.
A wholesaler said: "This has legs, the volumes and open interest are certainly proving it has potential...I would rather have a mechanism that is free data, transparent and inclusive than an old school opaque system."
A senior broker agreed, "I think it could happen, why not? Competition is the name of the game."
A banking source added: "I think [success of the new reference points] is a distinct possibility, given that the volumes at this early stage are decent. There's certainly a degree of disquiet from some users of the existing benchmarks, and the cleared solution has advantages to certain customers."
