The London Bullion Market Association, which oversees the city’s $5tn gold market, has named the financial technology firms that will run its electronic platform in an effort to bolster trading transparency for the precious metal.
Starting in the first quarter of next year, physical gold trades by LBMA members will be reported to a platform run by Boat Services, a London-based company that provides financial trading technology, and its partner Autilla, another fintech start-up.
The two companies have won the mandate over large exchange groups, including the London Metal Exchange, Intercontinental Exchange and the CME Group, which also submitted proposals.
The move reflects efforts to give greater accountability to London’s physical over-the-counter gold market, the world’s largest for bullion, where the precious metal is traded privately between buyers and sellers and stored in vaults in the city. There is currently no data on how much gold is traded every day, though estimates put it at around $5tn.
Since the financial crisis, policymakers have been pushing for financial instruments to be traded on exchanges and cleared through centralised systems. Other precious metals such as silver, platinum and palladium will also be traded over the LBMA’s electronic platform.
“It’s an opportunity for the industry to do the right thing,” said Ruth Crowell, head of the LBMA. “Being able to have real statistics will be meaningful not just for regulators but for the market itself as well as potential investors.”
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The launch of the association’s platform comes amid growing competition in London’s gold trading. In August the LME and the World Gold Council announced plans for a gold futures contract that is backed by a consortium of banks that includes Goldman Sachs and ICBC, the giant Chinese lender. It is unclear whether the LME can successfully attract trading to its proposed exchange.
The LBMA, which was set up by the Bank of England in 1987, is not involved in that venture but said other initiatives could plug into the new electronic platform. The association noted it may launch its own trading venue and clearing house in the future.
Boat Services has worked on a trade reporting system with the London Stock Exchange that helps banks meet reporting requirements under upcoming regulations known as Mifid II that will come into effect in 2018. The company is owned by Sweden’s Cinnober, which helped build the clearing house for the LME.
The LBMA announcement comes ahead of the group’s annual meeting in Singapore next week. Members are also expected to discuss the state of the weak gold market, which has remained quiet with buyers from India and China largely absent from the physical market. After rising to a high of almost $1,380 a troy ounce in July, gold fell this month to its lowest level since June and is now trading at $1,254.86.
The association is hoping that a trade repository could also help it lobby regulators against more onerous rules on gold trading that have been proposed for banks.
The body, which has 149 members, is lobbying the European Commission and the Basel Committee on Banking Supervision for a reduction in a proposed rule that would force banks to hold higher amounts of capital against their activities in the bullion market. It argues that gold should be treated differently from other commodities because it also acts as a currency.
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