Financial Market Development

Governance and Harmonisation

The momentum behind LBMA’s drive to reclassify gold as Tier 1 HQLA status continued in 2023. Along with the World Gold Council, LBMA is working hard to demonstrate that gold meets the seven HQLA criteria – and where there are gaps, we are actively closing them.

Those gaps centre on demonstrating an active and sizeable market and our work has focused largely on three areas:

1. Pre-trade transparency
   Here we are aiming to create a bid/ask spread (spot) that showcases that gold has a very favourable low bid/ask spread compared to other existing HQLA. We’ve identified an existing data source which hopefully will limit additional data reporting from Members.
2. An active repo market
   Work has started to analyse existing LBMA Trade Data to assess its suitability for a forward benchmark. We will update members once this initial analysis is completed.
3. Diversity of market participants and liquidity
   In our Member consultations this year we’re spoken broadly about the role of a ‘liquidity provider’ and the need to demonstrate (to a regulator) that the liquidity pool within the OTC gold market is indeed broad and diverse. Surrounding all this is an education and engagement drive, focused on informing regulators and stakeholders about what has changed in the gold market since 2013 when gold wasn’t considered a suitable HQLA by the European Banking Authority (EBA) acting on behalf of the Basel Committee on Banking Supervision (BCBS). We now have 5 years’ worth of LBMA Trade Data, bringing much valued transparency to the size and depth of the over-the-counter (OTC) market. Following the US banking crisis this year, the time is now to demonstrate that gold has a crucial role to play to enhance Level 1 liquidity assets and brings undeniable diversification benefits.