Morgan Stanley Joins New Silver Fix

October 26th, 2016 by

Morgan Stanley is the newest addition to the LBMA Silver Price, previously known simply as the London silver fix.

silver manipulationAmid accusations of price manipulation and the transition to a fully electronic platform, the daily price-setting mechanism for the global silver market was rebranded as the LBMA Silver Price about two years ago. Nevertheless, the “fix” works essentially the same as it always has, bringing major “Market Makers” together to suss out the relative supply and demand for bullion on the open market. These approved Market Makers are always large financial institutions.

Whereas the original silver fix, which traces back over 100 years, was run by the London Silver Market Fixing Ltd., the new fixing mechanism is administered by a partnership of Thomson Reuters and the Chicago Mercantile Exchange (CME) Group. CME provides the electronic platform while Reuters governs the benchmark and distributes news of the price settlements through its media channels.

Filling the Lineup

Morgan_Stanley_on_Times_SquareThe announcement by the CME that Morgan Stanley (MS) will join the LBMA Silver Price means that there are now seven participants in the price-setting benchmark. The other members include the China Construction Bank, HSBC, JPMorgan, the Bank of Nova Scotia, the Toronto Dominion Bank, and UBS. More participants could be added in the future.

In terms of market capitalization, Morgan Stanley is roughly comparable in size to Goldman Sachs (GS) and UBS at $64 billion. The firm was first incorporated 35 years ago.

Though retail sales of silver bullion will generally use the prevailing spot price of silver for settling payment, large institutions like banks, governments, and mining companies that are completing massive transactions are still most likely to rely upon the day’s silver benchmark price.

New Precious Metal Contracts

In addition to approving a new member to the daily silver fix, the CME Group is making other changes when it comes to gold and silver. The group is expanding what kind of precious metals trading contracts it offers to the marketplace.

Traders and investors can now hold futures contracts on three key spreads between the different metals: 1) a gold-silver ratio contract; 2) a gold-platinum ratio contract; and 3) a platinum-palladium ratio contract. This allows clients to play the spread between the pairs of metals.

American Gold and Silver EaglesIn the past, you would have to swap out positions on the two metals in question separately in order to trade on the spread between them. (Earlier this year, based on their price ratio, selling gold to buy silver was a particularly lucrative trade.) This is a fairly simple task with physical precious metals. However, banks and portfolio managers can now gain exposure directly to the price ratios through these new CME contracts.

In many ways, the new futures contracts for the precious metal ratios are a striking indication that the markets—and big financial institutions—are gauging increasing interest in gold, silver, platinum, and palladium as investments.


The opinions and forecasts herein are provided solely for informational purposes and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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