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Charles Benavidez

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The $7 Trillion Club That Even Goldman Sachs Couldn’t Join

London

London Precious Metals Clearing Limited (LPMCL) is one of the most exclusive ‘clubs’ in the world, handling nearly $7 trillion in gold transactions every year. Now, according to a Reuters report, they’re about to become less exclusive.

The club is restructuring with an eye toward greater transparency in the wake of price manipulation accusations, says Reuters.

The figure of nearly $7 trillion represents the annual value of every single transactions in London’s gold market. And only five banks are part of the club: HSBC, JPMorgan, Scotiabank, UBS and ICBC Standard, the newest member as of 2016.

Goldman Sachs tried to join earlier, but was allegedly rejected, Reuters noted, citing unnamed LPMCL member sources. Goldman Sachs declined to comment.
Entry requirements have been harrowing, and the restructuring is supposed to make it easier to join the club. It should open up the London gold market to more competition.

It’s taken a long time to get to this point, though. According to Reuters, three years ago independent consultants found that LPMCL was coming up short in terms of transparency and good governance.

The new set-up would include two tiers of membership in the exclusive club. Tier 1 would be for shareholders, or ‘Equity Members’, and Tier 2 would be for non-shareholding, or ‘User Members’, who would pay a subscription to participate.

The overall goal? To avoid any anti-trust collusion lawsuits, according to sources interviewed by Reuters. Related: Is Bitcoin Heading Into Bear Territory?

Indeed, the club has had a problem with reputation. UBS AG, one of the club’s exclusive members, participated in a scheme to manipulate the price of precious metals on commodities exchanges through illegal “spoofing” activity between 2008 and 2013, according to an order by the Commodity Futures Trading Commission (CFTC) on 29 January this year.

But the London club isn’t alone.

In March 2014, a lawsuit was filed against a group of international banks, alleging that they conspired to manipulate the price benchmark. The banks include Societe Generale SA, Deutsche Bank AG, Barclays Plc, Bank of Nova Scotia and HSBC Holdings Plc.

In 2016, a year after Deutsche Bank left the London club, it decided to settle US lawsuits for conspiring to manipulate the gold and silver markets. Barclays left in 2016, according to Reuters, and close down its precious metals operations in London.

Essentially, under increased scrutiny and regulatory pressure, exclusive membership isn’t as attractive as it once was.

Last month, Scotiabank hinted that it was making moves to restructure and downsize its metals unit, which could mean it’s rethinking its own club membership, Reuters reported. 

By Charles Benavidez for Safehave.com

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