Common use of LBMA Clause in Contracts

LBMA. The London Bullion Market Association is the London-based trade association that represents the wholesale gold and silver bullion market. London is the focus of the international Over- the-Counter (OTC) market for gold and silver, with a client base including the majority of the central banks that hold gold, plus producers, refiners, fabricators and other traders throughout the world. The LBMA was formally incorporated in 1987 in close consultation with the Bank of England, which was the bullion market’s regulator at that time. The primary regulator for the bullion market in the UK is now the Financial Services Authority, with which the Association maintains a close working relationship. The LBMA’s membership includes companies that are active in the bullion market, encompassing banks, dealers, fabricators, refiners, shippers and brokers. There are two categories of full membership: market making and ordinary (although the latter term is not currently used in the LBMA’s Articles, which simply refer to Members and Market Making Members). Although originally open only to UK-based companies, full membership can now be granted to companies in other countries as long as they have a branch or subsidiary in the UK. In January 2000, the Association widened its base of participation by introducing a third category of membership, Associateship, which is designed for companies that have strong ties to the London bullion market. Associates, however, are not Members and, for instance, have no vote in the affairs of the Association. The Association’s 63 Members, 52 Associates and 3 Affiliates are located in 19 countries. Unlike other commodity exchanges, the London Bullion Market does not operate as a commodities exchange with a clearing house as a central counterparty, but instead operates on an Over-the-Counter (OTC) or principal-to-principal basis, which enables participants throughout the world to trade with Members of the London market. Six of the Market Making Members provide a clearing service for both paper gold and silver (based on unallocated accounts) and physical gold and silver in the form of allocated metal. A list of Full Members is shown at Annex 2. As the London Bullion Market is an OTC market, no comprehensive data is published as to the amount of metal that is traded in the London market, but the average daily value for gold and silver cleared through the London Bullion Market in June 2007 was US$14.3 billion and US$1.48 billion, respectively. The London Bullion Market is a truly international market, in that although dealers in other bullion trading centres may trade in their local markets and commodity exchanges, they also deal extensively in “loco London” metal. This term means that the gold or silver will be settled in London by the LBMA Member, either by way of book transfer or physically. The location of the underlying metal will be referred to within the contract with the customer, whether the trade is on an unallocated or allocated basis, but at all times, the metals remain under the physical control of the LBMA Member. For VAT purposes, transactions in metals held by LBMA Members are referred to as being supplied within the “black box”. The on-going work of the Association encompasses many areas, among them refining standards, trading documentation and the fostering of good trading practices. In the refining industry, the LBMA Good Delivery List is now widely recognised as representing the de facto standard for the quality of gold and silver bars, in large part thanks to the stringent criteria that an applicant must satisfy before being listed. In January 2004, the LBMA announced the introduction of proactive monitoring of refiners on the List, an important initiative that further enhances the reputation of the List and the refiners on it. In conjunction with the foreign exchange and money markets in London, the Association has developed the Non-Investment Products Code, which provides a code of conduct by which all Members and Associates are required to abide. The Association and the London Platinum and Palladium Market produced a joint publication, A Guide to the London Precious Metals Market, which describes the products available in the London market and how these can be used by market participants around the world. This is available from the LBMA website and upon request. The LBMA’s annual precious metals conference is now the premier professional forum for the world’s bullion market. Following the conference held in Hong Kong in November 2012, the next event in the series will take place in Rome, Italy in September 2013. The Alchemist, the LBMA’s quarterly journal, contains articles of general interest to all participants in, and observers of, the bullion market. It is available free of charge from the LBMA Executive. The LBMA’s website can be found at ▇▇▇.▇▇▇▇.▇▇▇.▇▇ and contains a range of statistics and other information about the bullion market.