Market Making Members of the LBMA trade with each other and on behalf of a global client base, comprising: most central banks holding gold; mining companies; investors; refiners; manufacturers of jewellery and industrial products; and other traders.
Trading between LBMA Market Makers trade and their clients is on a principal-to-principal or Over The Counter (OTC) basis. This provides confidentiality and ensures all risks, including those of credit, stay between the two counterparts of the transaction.
Unlike an Exchange, where trading is based around standard contract units, settlement dates and delivery specifications, an OTC market allows for a greater degree of flexibility. The two counterparts to a transaction can bilaterally agree or customise the details of the transaction in terms of quotes, price, size and, if appropriate, the destination for physical delivery. However, only gold and silver bars that meet the LBMA’s London Good Delivery standards are acceptable for delivery of transactions settled through the London OTC market.
Market-Making services in the London market are provided by 11 Members of the LBMA. One of the requirements of being an LBMA Market Maker is to be able to provide two-way price quotations, both bid and offer, throughout the normal London bullion trading hours. A dealer could, for example, quote $1,436.50 - $1,437.50, where $1,436.50 represents the bid price he’ll pay for gold and $1,437.50 the offer price at which he’ll sell it. The size of the spread (the difference between the bid and offer prices) depends on a number of factors including market and economic conditions, volatility and transaction size. Once the parties have agreed the transaction, the parties will agree to transfer funds between accounts on, or before, the value date and, at the same time, instruct their clearer to give or receive metal.
Find out more about Market Makers and who they are by clicking here.