London bullion market participants were seemingly losing both interest and faith in the ongoing "request for proposal" aimed at digitizing and increasing transparency of the London's gold trade, sources said Monday.
Trade body the London Bullion Market Association recently issued a RfP for the reform of the London market, led primarily by increased regulation.
Five service providers had made the final cut to submit a RfP to increase transparency in the market, widely believed to be CME Group, the London Metal Exchange, IntercontinentalExchange, Autilla/Cinnobar and Markit/ABS.
None of the parties, nor the LBMA, would comment on the matter, owing to the signing of non-disclosure agreements.
One banker said that he had little enthusiasm for the process.
"The whole auction process needs an urgent overhaul and it's simply not good enough to hide behind non-disclosure agreements as an excuse to say nothing," the banker said, echoing sentiment of others in the market.
There appeared to be a belief that the LME could be front-runners for the bid, although it is also widely rumored in the market -- although neither confirmed nor denied by the exchange -- that it has a platform ready to roll out regardless of the RfP.
The LBMA would own the intellectual property of any successful RfP candidate's technology platform.
The LBMA says "the purpose of these new services is to address the immediate regulatory, cost and growth requirements of the market, which will connect via a technology interface called the LBMA-i."
LME Clear is already set up and approved to clear precious metals. The exchange included precious metals in its requests for regulatory approvals when it set up the clearing house.
One banker said that, "LME are set up for their own thing. But we still want the LBMA to ask the members what we want before being lumped with a choice from the good, the bad and the ugly again."
Many members say the feel that they are on the sidelines of the reforms, which should be being made with more of their input.
However, there are many members defending the LBMA.
"I don't understand what some traders think the LBMA are not taking responsibility for the process? Isn't that what they are doing?" a senior source said.
The source also disagreed with recent comments that London could be losing its grip as the center of global gold trade.
"Even though traded volumes will probably be dominated by Asia, I think the US and Asia will continue to look to the LBMA for leadership in these markets. I'm not sure who else would take on that role, and I think it's a necessary one," the source said.
One high level source said that he now sees the LME as the likely suitor.
He said that he'd like the winner to be CME seeing it already operates the world's largest gold futures exchange.
However, there has been severe market criticism of the LBMA Silver Price, operated and administrated by CME/Thomson Reuters since 2014.
"The problem is, will the CME be dragged down with the silver price issues even though I don't think it should affect them?" he said. No one ever blamed the CME's systems for the problems, instead fingers were pointed directly at over regulation of the markets.
Regulator, the Financial Conduct Authority declined to comment. Aside from the votes for the big three in the hat for the RfP -- CME, LME and ICE -- there were also voices of support for ABS/Markit and Autilla.
One trader thinks that ABS has the best understanding of the market out of the candidates. There was also growing support for Autilla's technology.
"Autilla has the best platform as it was built by traders for traders who knew what the real needs are. ABS is not a bad shout too, but I think [the fact they are] based in Asia may cause some issues," said a banker.
ABS and Autilla are both technology companies, and not exchanges like the other three candidates.
One source aired concerns that regardless of how good the technology offered by the pair is, the market may opt to go with a big name as it did in the reform of the old "fixes."
The LBMA owns the intellectual property of the London gold, silver, platinum and palladium prices, previously known as the "fixes." The gold price is operated/administrated by IBA, the benchmark arm of IntercontinentalExchange, platinum and palladium by the London Metal Exchange and silver by a partnership between CME Group/Thomson Reuters.
"They [the LBMA] are looking for a software IT solution for some issues. So why ask exchanges that are on the buy-side of the IT market for a sell-side solution?" the source said.
