Ruth Crowell (RC): Hello, Andy. Thanks for taking part. I’m excited to hear about all the new developments at London Precious Metals Clearing (LPMCL).
First, let’s start with some background for those less familiar with this key point of London Market infrastructure.
What is the LPMCL and how does it work?
Andy Lovell (AL): Hi, Ruth. In the mid-1990s, the London bullion market was prompted by the speed with which the financial markets were changing – and the increase of vigorous audit requirements – to consider developing an electronic matching system for over the counter (OTC) settlements.
Initial exploratory work was undertaken by the LBMA Physical Committee, which comprised the clearing members, but it was
eventually decided that a separate company should be formed specifically for the purpose of developing and administering such a system.
The LPMCL was formed in April 2001 and was reconstituted into a Private Equity Company in 2017. LPMCL was created to be the administration vehicle that enables members to undertake the clearing of precious metals on behalf of the members for their own proprietary trades, and trades of their clients offered up for clearing.
LPMCL current members – HSBC Bank, ICBC Standard Bank, J.P Morgan, and UBS – utilise the unallocated precious metals accounts they maintain with each other, not only for the settlement of mutual trades but also for trades of their third-party counterparties worldwide for whom they maintain unallocated metals accounts and provide clearing facilities.
RC: How would you say LPMCL serves the market?
AL: LPMCL is operated as a not-for-profit market utility company that maintains an efficient Loco London bullion clearing service to facilitate the settlement of international trading in the OTC precious metals market.
London is the primary settlement centre for OTC transactions. One of the main responsibilities of the LPMCL is to maintain and develop the AURUM system which is co-owned by the equity member LPMCL Clearing Banks. During December 2023, for instance, settlements for 21.8 million ounces of gold and 218.1 million ounces of silver were processed via AURUM each day.
LPMCL ensures that only London Good Delivery accredited bullion bars are accepted in the London market and the member vaults are the gatekeepers of the London Good Delivery standard, for the purposes of transactions permitted under the provisions of the LPMCL Unallocated and Allocated Accounts. This helps uphold the integrity of the market. It also ensures all trading activities are conducted in observance of prevailing regulatory rules and legislation, and as outlined within the Global Precious Metals Code.
LPMCL also works closely with LBMA on matters concerning the maintenance and development of the London OTC market, so we are constantly working in the best interests of the market.
RC: The AURUM system is clearly integral to the efficiency of the London Market. How does the LPMCL ensure the technology is robust?
AL: In recent years the LPMCL has engaged external auditors to audit both the AURUM technology and the corporate governance of LPMCL. The AURUM system is audited against SOC 2 standard for information technology systems.
RC: What benefits are there for firms who are part of LPMCL?
AL: Being a clearing Member means you can offer your bullion clients a full-service offering, including clearing. It also means you have a seat at the table when it comes to the strategic development of this key market infrastructure for the OTC markets.
RC: How can firms apply to become a member of the LPMCL?
AL: When considering membership, a firm should first decide what type of Member they would like to be. There are two types of LPMCL membership:
- A User Member is a bank involved in the clearing (or settlement) of transfer instructions and account management for precious metals, as contemplated by the Rules and which is not a shareholder of LPMCL.
- An Equity Member is a shareholder of LPMCL which is also a User Member.
All Members must be a Market Making Member of LBMA or a Full Market Making Member of LPPM, must operate a vault or have access to vaulting services, and must enter into a bilateral agreement with all other clearing members, amongst other things.
The LPMCL has recently updated its website and you can find a full list of membership criteria as well as details on how to apply on www.lpmcl.com.
Any firm wishing to apply should email mail@lpmcl.com or LPMCL@LBMA.org.uk which are monitored by LBMA so that firms can ask for basic information prior to enquiries being forwarded to the LPMCL Members.
A confidentiality agreement must be signed and then a copy of the Rules is shared with the applicant, who then is required to pay a non-refundable application fee of £10,000.
RC: What will the application fee be used for?
AL: The fee reflects the work undertaken throughout the application process by each individual member and the LPMCL Executive. This work primarily involves the testing of internal procedures and technical capabilities. Should this testing stage be successful, the application fee will also cover costs involved with incorporating the applicant into existing technical frameworks and legal agreements.
YOU CAN FIND OUT MORE ABOUT BECOMING A MEMBER OF LPMCL, INCLUDING THE PROCESS, TERMS, FEES, AND CRITERIA, ON THE LPMCL WEBSITE.
RC: Ok – Assuming all the due diligence and testing goes smoothly, what happens next?
AL: After the fee is paid, the due diligence/testing is conducted, which includes confirmation of its compliance with the membership criteria set out in the LPMCL Rules, including its status as a Market Maker with LBMA and LPPM. Then, the applicant is invited to present to the LPMCL Board on its eligibility. The Board may then, upon its discretion, confirm to the applicant that it is prepared in principle to admit the applicant as a User Member, inviting the applicant to enter into the User Terms of Membership Agreement and agree to be bound by the LPMCL Rules (and its criteria for operation).
If the applicant accepts the offer, they will be required to enter into two agreements with LPMCL: Terms of Membership Agreement and The Rules. The applicant will also be required to incorporate the Allocated and Unallocated Accounts Agreements into its business.
RC: Let’s step back a little and explore your role at LPMCL, Andy. How did you become Chairman?
AL: As an Executive Director at JP Morgan, one of the Clearing Members, I became Chair in 2017 after standing for election and have held the position since then.
The LPMCL Board is constituted of two representatives from each equity member and LPMCL member institution, acting as Directors. This year I’m happy to announce there will be a significant change to the board structure, following a strategic review last year. We intend to appoint an independent Non-Executive Director to potentially act as Chairman. We have recently launched a search process and welcome all potential applicants to contact kelly@integratedresources.co.uk, or you can find the full job description on the LPMCL website. We are ideally looking for someone with experience of running market infrastructure, but not necessarily a precious metals expert as we certainly have that in house!
RC: That’s excellent news, what has driven the decision to take on an Independent Non-Executive Director?
AL: Given the importance of the LPMCL and the growth of its business, the decision was made to appoint an external Director to ensure transparency, as well as adherence to the current best practice for market infrastructure company governance. Also, given the increased interest in joining LPMCL, it provides the opportunity for potential members to discuss their interest without needing to consult with the members directly.
