Standard Bank was emerging as a front runner to buy Deutsche Bank’s place in the global gold price-setting process, sources close to the matter said.
A seat in the process – also known as the twice-a-day “fix” – to determine the benchmark gold price has long been considered a mark of distinction in the bullion market.
Deutsche Bank said last month that it was selling its seat at the fix, which it has held for two decades, after its recent decision to withdraw from the bulk of its commodities business.
The fix, along with other commodity benchmarks, has come under growing regulatory scrutiny and European regulators have launched investigations into suspected manipulation of precious metal prices by banks.
Standard Bank is selling a stake in its markets unit to shareholder Industrial and Commercial Bank of China (ICBC) for $765 million (R8.3 billion).
Market sources said Standard Bank, in conjunction with ICBC, was in prime position to buy the seat. “Standard Bank is a shoo-in for the fixing seat – they want it, and it would be acceptable to the other members,” a senior gold market source said. “It’s just whether they can agree a fee.”
Originally, sources suggested that the deadline for a deal was the end of this year, but a deal looks much closer now. It was a matter of “months rather than quarters”, another source said.
Standard Bank and Deutsche Bank declined to comment.
The last time a seat at the fix changed hands was in 2004, when NM Rothschild & Sons sold its seat to Barclays.
Deutsche Bank’s replacement at the fix is expected to be a market-making member of the London Bullion Market Association (LBMA) – the members of which quote two-way prices to each other for agreed minimum quantities of gold during the London business day. But that does not necessarily mean it has to be a market maker at present.
Standard Bank said last month that it would sell a 60 percent stake in its London-based global markets unit to ICBC.
“ICBC have wanted to be a market-making member of the LBMA for a while,” another senior gold market source said.
ICBC has been steadily building its presence in the gold market since setting up its precious metals department in 2009, and has previously said it was targeting expansion of its precious metals business outside China.
In 2011 it became a full member of the LBMA – one of only two Chinese banks to do so.
Some in the market questioned whether ICBC had enough trading capacity in the European time zone to become a market-making member on its account. They suggested gaining market-making status through Standard Bank was more likely.
Standard Bank is already active in the platinum and palladium fix and is a market-making member of the London Platinum and Palladium Market.
LBMA guidelines say a company seeking market-maker status must undergo a probation period of about three months, during which it must quote the current market makers.
Standard Bank shares fell 1.38 percent to R119 yesterday.