31 May 2015
by Peter Schiff, Schiff Gold:
The London Bullion Market Association (LBMA) has launched a code of conduct to boost confidence in the $5 trillion London gold market.
The code sets out standards and best practices expected from participants in the global over the counter (OTC) wholesale market for precious metals. It focuses on four primary areas: ethics, governance, compliance and risk management, and information sharing and business conduct. The LMBA formulated the code with input from members, along with participants from from the wider precious metals market.
It is intended to promote a robust, fair, effective and appropriately transparent market in which diverse groups of market participants, supported by resilient infrastructure, are able to confidently and effectively transact at competitive prices that reflect available market information and in a manner that conforms to acceptable standards of behavior.”
LBMA Chairman Paul Fisher called the Global Precious Metals Code an important step in market development.
Such codes are important contributors to developing and establishing the trust on which markets depend. This trust is critical to the maintenance of an effective, fair and transparent market where high standards of behavior are the norm.”
LMBA members will have 12 months to demonstrate compliance with the code. Failure to do so could result in suspension or withdrawal of membership.
The LMBA operates as a wholesale over-the-counter market for the trading of gold and silver. It ranks as the largest global center for OTC gold and silver transactions in the world. The LMBA clears around 18 million ounces in gold transfers every day. The association has more than 140 members, including banks, refiners, traders, and manufacturers.
According to a Reuters report, the LBMA code is one of three developed as a result of the Fair and Effective Markets Review (FEMR) of the fixed income, forex, and commodities markets. The UK government commissioned the review three years ago after British banks were fined billions of pounds for trying to rig benchmark interest rate Libor ( London Interbank Offered Rate is the average of interest rates estimated by each of the leading banks in London that it would be charged were it to borrow from other banks), and manipulate foreign exchange reference rates.
The FEMR found that informal codes of practice across these markets had often been misunderstood or disregarded, especially in bilateral over-the-counter (OTC) markets like gold. A lack of internal controls and personal accountability had meanwhile contributed to what it called ‘ethical drift.’ The review recommended that firms working within these markets should take greater collective responsibility for ‘developing and adhering to clear, widely understood and practical standards of practice.’”
With its size, the LBMA’s development of a formal code of conduct will likely influence the broader gold market. It should serve to boost and support confidence in gold and silver trading, not only in London, but around the world.
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