Pay-to-Play: LBMA shows contempt for the wider Gold and Silver markets

As the LBMA hides gold and silver trading data behind a paywall, this further torpedoes market transparency and undermines Fair and Efficient Markets.

Exactly six months ago, the London Bullion Market Association (LBMA) began weekly publication of rolled up trade volume data for the London and Zurich gold and silver markets in an exercise that was spun by the LBMA as increasing transparency in the global over-the-counter precious metals markets.

Misleadingly referred to as ‘Trade Reporting’, the data published by the LBMA was nothing of the sort and merely consisted of high level anonymized and aggregated trade activity volume data across a number of trade types and date increments, which was all rolled up and averaged to give a weekly trade volume number for each of gold and silver.

For example, in the first week of publication, the data pointed to there having been on average the equivalent of 939 tonnes of gold (30.2 million ounces) and 11,174 tonnes of silver (359.2 mullion ounces) traded each day over the five trading days between 12th and 16th November 2018.

LBMA: Avg daily trade volume for gold and silver in London & Zurich, 12-16 Nov 2018

Putting aside for a minute the sheer impossibility that these figures represent physical metal (since they almost entirely represent synthetic unallocated cash-settled paper gold and silver trading), this data was the first chink of light into what had hitherto been totally opaque trading venues which had never had any trade volume data published save a few sporadic surveys over the years.

Fair and Efficient – LBMA Style

The LBMA’s so-called “Trade Reporting” had also been years in the making, promised four years earlier and subject to excruciating delays and excuses from as early as January 2015, when importantly, the concept for the reporting had evolved out of the UK Financial authorities Fair and Efficients Markets Review (FEMR), a review devised in the wake of countless trading scandals and manipulation by investment banks of practically every Fixed Income, Currency and Commodities (FICC) market in London.

The FEMR initiative aimed to improve the fairness and efficiency of FICC markets and for example, the FEMR report, page 31, section “Market-led improvements in post-trade transparency in commodities markets” said that FEMR’s independent Market Practitioner Panel had recommended that:

“in certain liquid, standardised physical commodities markets (such as gold bullion trading) ‘availability of post-trade reporting would provide an understanding of liquidity, help to dispel some concerns over information abuse, and work towards levelling the playing field‘”

Upon initial publication in November 2018, the LBMA CEO described the new weekly trade volume data as “an exciting moment for transparency in the Global OTC Market“.

The LBMA CEO also described the new data as a development which “will promote transparency for existing and potential investors” and “promote positive investor sentiment”. 

“Increased transparency should prove a highly beneficial resource for existing and future OTC investors, as they seek to better understand market liquidity and depth”. (LBMA-Delivering Transparency and Integrity“).

All Round Enthusiasm

It wasn’t just the LBMA which was excited. Matt Turner of Macquarie, in his commentaryin November about the new data said that:

“The release of turnover data marks another step forward in giving greater transparency on the activities of London gold and silver market.

Its importance should not be understated. For the first time in the long history of the London gold market its size is not guesswork but a reliable measurement.

Not only will this enhance participants’ understanding of market size and liquidity, but for analysts will let us tell a story of how volumes shift in response to changing underlying market conditions and prices.

Source: Matt Turner_LBMA_SupportingCommentaryTradeReportingFinal

Powered by WPeMatico