In this regular feature, LBMA publishes responses to frequently asked questions received from Members and other stakeholders. This is one of the many ways in which we are striving to be transparent in our goal to advance standards and develop market solutions.
If you have any questions on any of our initiatives, publications, events or strategic direction, please email ask@lbma.org.uk.
Here are the responses to queries we have had this month:
1) How can new digital initiatives such as tokenisation and Distributed Ledger Technology (DLT) most benefit the gold market?
DLT can be used in a similar way to the settlement model used by CLSSettlement for foreign exchange trades, in that parties can make use of a facility known as hashed timelock contracts where one payment is only made when the other reverse payment is unlocked. Central banks have started to experiment with this technology where they may eventually create wholesale central bank digital currencies. This type of settlement could be used in the future for precious metals.
It isn’t just the payments that may benefit from DLT. For instance, the recent announcement regarding the launch of the Gold Bar Integrity programme pilot will rely on blockchain to provide provenance records for the gold industry.
2) What does the International Indian Bullion Exchange mean for both Indian and international bullion flows?
LBMA recently held a webinar, which featured Sunil Kashyap (Managing Director, Finmet PTe), Jeremy East (Senior Advisor for Asia, LBMA) and David Gornall (Senior Adviser, LBMA), to discuss the India International Bullion Exchange and the changes this development will bring to the region.
The panellists agreed that the establishment of the India International Bullion Exchange and the push towards standardisation will certainly open the market to global players. The Indian government has now mandated two additional regulators, which have allowed exchanges to be set up onshore, as well as a spot exchange offshore. This could mean a move towards exchange trading, as more transparency and liquidity in the market is desirable.
You can watch the webinar here
3) Gold price moving higher attracts forward sales. Is it therefore time to resurrect gold interest rate swaps by way of a new Gold Forward Offered Rate (GOFO)?
There have been some white papers circulating within the market regarding a new interest rate swap. If the market and the approved benchmark administrators can come together to scope out a method to achieve this, it would potentially alleviate the high cost of long dated over the counter (OTC) trades. If you are interested in taking part or would like to learn more, please contact David Gornall.
4) NSFR – what’s the latest?
Two ratios developed to reduce risks in stressed-market scenario: Net Stable Funding Ratio (NSFR), which discourages using short-term deposits to make long-term loans; and the Liquidity Coverage Ratio (LCR), which ensures that banks have 30 days’ outgoings-worth of unencumbered high-quality liquid assets (HQLA). Gold is not currently recognised as an HQLA, it’s grouped with other commodities for NSFR rules. The UK’s PRA approved a ‘carve-out’ for gold prior to 1 Jan 2022. LBMA is continuing to campaign for recognising gold as a HQLA.
You can find out more on LBMA’s financial regulation page.
5) Where can I find past conference resources?
Materials from past conferences are now available on our website. You can find past programmes, speakers, presentations and videos on LBMA's events page – simply select the ‘past’ and ‘conferences’ filters.