Regulatory Report

LBMA Trade Data is available through Bloomberg terminals at FIFW ALLX LBXU for Gold, LBXG for Silver, LBXT Platinum and LBXD for Palladium. Alternatively, you can receive the data via email using a Nasdaq Enterprise License. Nasdaq File Delivery Service gives you the added flexibility of being able to reformat data according to your needs. For more details, write to lbma-i@nasdaq.com or go to www.nasdaq.com/LBMA.

NET STABLE FUNDING RATIO

The Net Stable Funding Ratio (NSFR) will be implemented in Europe in June 2021 and in the US in July 2021. It has already been adopted in other countries such as Australia, Canada, India and Singapore.

Following the exclusion of gold from the High Quality Liquid Asset (HQLA) list in 2013, LBMA has sought to strengthen publicly available data to support the claim that gold can meet the requisite tests and criteria used to assess liquidity in financial asset classes.

The first half of the year’s period of liquidity will be included in our statistics and will be valuable within our efforts to demonstrate that gold should be included as an HQLA when prudential regulators conduct their next review.

The European Banking Authority (EBA) will publish a report on the impacts of NSFR in the precious metals market in June 2021, which will include references to the most recent set of LBMA Trade Data. The EBA uses the Basel Quantitative Impact Study to assess the impact of finalised Basel III standards such as NSFR.

SECURITIES FINANCING TRANSACTIONS REGULATION

The reporting obligations for the Securities Financing Transactions Regulation (SFTR) went live in July 2020. SFTR aims to reduce systemic risk in the securities financing transaction (SFT) market by requiring financial and non-financial counterparties to report both sides of any SFTs. Guidelines published by the European Securities
and Markets Authority (ESMA) in January 2020 announced that commodities transactions entered into for operational or industrial (non-financial) purposes are not SFTs and therefore are out of SFTR’s scope.

In response to those ESMA guidelines, LBMA has published market guidance to assist market participants in their application of SFTR and the operational or industry purpose exemption. Having a market position will help to avoid any reporting inconsistencies, underreporting or overreporting. LBMA has also published a representation letter for use between financial and non-financial counterparties in applying the operational or industrial purposes exemption to ensure uniformity in the market’s interpretation of reporting obligations under SFTR.

TERMINAL MARKETS ORDER

Since its publication in 1973, the Terminal Markets Order (TMO) has set out a simplified system of controls to reduce the Value Added Tax (VAT) administrative burden for certain terminal markets in order to help them maintain their competitiveness, particularly with regard to non-EU markets.

In May, the Court of Justice of the EU (CJEU) concluded its infraction proceedings between the European Commission and the UK on its tax framework for terminal markets. The CJEU found that the UK, by broadening the TMO’s scope to include several terminal markets not included in the original TMO (as amended in 1975), had breached its obligations.

LBMA is working with industry experts and HM Treasury to clarify any potential implications on the precious metals markets. At the date of publication, there are no changes to the current VAT treatment of precious metals and, from January 2021, the UK will not need to comply with any EU judgment or legislation.

LONDON OTC MARKET REVIEW

Last year, LBMA launched a review of the Market Making membership category and its requirements. With recent changes in market conditions and liquidity, LBMA has additionally sought to gain views from its trading members on this and other market-related subjects.

Over a series of member meetings, LBMA has gained insight into some of the issues most concerning members and potential solutions. The subject matter has ranged from pre-trade transparency and liquidity to costs arising from new prudential regulations such as the Net Stable Funding Ratio (NSFR), the Initial Margin Rules for non-centrally cleared derivatives and the Standardised Approach Counterparty Credit Risk (SACCR). The aim of the market review is to create transparent, fair and efficient solutions.