The LBMA Good Delivery List A Primer Stewart Murray Chief Executive The London Bullion Market Association LBMA Assaying and Refining Seminar 7th March, 2011
What London provides for Precious Metal Investment •
Allocated and Unallocated Accounts
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A Benchmark Mechanism – the fixings
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Competitive 24-hour trading
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Liquidity providers (market makers)
• Good delivery system •
Vaulting
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Clearing system
The LBMA Assaying & Refining Seminar 7-8 March 2011
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Metal Accounts and Precious Metals Investment
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Unallocated Accounts •
Equivalent to a current account at a bank. Account maintenance fees are charged.
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Institutional Investors and Hedge Funds
Allocated Accounts •
Segregated bars are held in the name of individual depositors. Storage fees are charged.
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Central Bank gold at Bank of England
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Exchange Traded Funds (ETFs)
London Vaulting
• Nine recognised Custodians (6 clearers, shippers & BoE) • Five vaults (JPM, HSBC, Brinks, Viamat, BoE) + JM in Royston (silver) • Security • Experience (weighing, inspection, storing, packing, shipping) • Quality monitoring – Gatekeeper role
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Bank of England
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G ld market Gold k t role l
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Relationship to other central banks
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Relationship to LBMA Members
What is the Good Delivery List?
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Gold and Silver (the LPPM has a similar system for Pt and Pd) Large Bars: approximately 400 tr oz (gold) and 1,000 tr oz (silver) Published by the LBMA since 1987 but origins go back to the ~1750 Originally what was acceptable to the Bank of England later an arrangement between members of the London Gold and Silver Markets listing refiners whose bars were acceptable as GD (i.e. LGD) The List is now maintained by the LBMA using objective criteria for admission and continued listing It is used by many markets for defining deliverable brands To be acceptable as LGD, all bars delivered to London vaults must also meet the LBMA’s technical specifications
The LBMA Assaying & Refining Seminar 7-8 March 2011
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The History of the London Good Delivery Gold List 1750-2010
Gold Good Delivery Refiners
The LBMA Assaying & Refining Seminar 7-8 March 2011
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Silver Good Delivery Refiners
Location of the refiners – then and now
• Steady move eastwards • From early 1980s 1980s, Japan was No. 1 in terms of numbers
The LBMA Assaying & Refining Seminar 7-8 March 2011
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Location of the refiners – then and now
• Steady move eastwards • From early 1980s 1980s, Japan was always No. 1 in terms of numbers • Decline in Europe, Australia & the Americas • New Russian refiners post Soviet Union (1999-) • Rapid growth in China since 2000
Gold Good Delivery Refiners By Region 40 35 30 25
Africa Americas
GDL 20 Refiners
Asia
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Europe Oceania
10 5 0 1994
2000
2009
Recent Additions – 2010 • • • • • •
Heraeus Ltd Hong Kong (silver) 15-Sep-2010 Kazakhmys PLC – Balkhash, Kazakhstan (silver) 21-Jul-2010 Yunnan Chihong Zinc & Germanium Co, China (silver) 28-Jun-2010 28 Jun 2010 L'azurde Company For Jewelry, Saudi Arabia (gold) 1-Jun-2010 Atasay Kuyumculuk, Turkey (gold) 7-May-2010 Shandong Gold Mining Co., China (gold and silver) 14-Jan-2010
The LBMA Assaying & Refining Seminar 7-8 March 2011
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The “doc” Versions of the List Active and Former Lists
Active List and Former List •
Active List means: • Refinery is operating and is accredited • Bars described are in current production • Each refiner can have only one bar on the Active List
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Former List means that • The bars and refiners listed are still acceptable (if produced before the date of transfer to the Former List), but y no longer g be operating p g • The refineryy may • The refinery may no longer be accredited • The bars listed may have been replaced by new ones, with different dimensions or marks, on the active list
The LBMA Assaying & Refining Seminar 7-8 March 2011
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The Electronic Version of the List Used by London Vaults to look up bar dimensions and illustrations and information on refiners
Purpose of the Good Delivery List
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Settlement of a loco London contract is a Good Delivery Bar (the brand being at seller’s option)
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To provide fungibility for the loco London contract (in other words all bars are regarded as being equivalent)
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Level Playing Field (for refiners, fabricators and investors)
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Increasingly seen as the only globally accepted accreditation by exchanges and ETFs
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What are the features of a Good Delivery Bar?
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Cast in open p moulds
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Dimensions
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Marks
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Good Physical Appearance
Good Delivery Bar Specifications •
Assay • 995-999.9 995 999.9 (gold) 999-999.9 (silver)
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Size: • ~400 ± troy oz (gold) ~1,000 troy oz (silver) • Range of LxWxH & undercut
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Marks (as per drawing) • Logo, g , number,, year, y , assayy • Clear and durable
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Physical Appearance • Flat surfaces, no holes or cracks
The LBMA Assaying & Refining Seminar 7-8 March 2011
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Changes in the GD Rules • •
January 2008 Edition (announced in July, 2007) Recommendation that if possible silver bars should weigh between 950 and 1050 tr oz Ban on closed mould casting Recommended undercuts introduced: 7-15% on length and 15-30% on width Pneumatic punching of marks allowed Bottom stamping disallowed Bar Numbers to have a maximum of10 digits July 2009 Version NGD bars to be marked as such May 2009 Version Changed bars must comply with recommendations on size and weight Eventual phasing out of pre-2008 bars with weights below 750 and above 1,100 troy ounces
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Good Delivery Accreditation •
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Non-technical criteria must be satisfied before accepting an application for assessment •
D il off O Details Owners and d Di Directors
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In business for 5 years
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Operating History – 3 years
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tangible net worth - £10 m (currently under review)
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Refined production level – 10 tonnes pa for gold (30 tpa for silver)
Technical Assessment – two parts: •
Assaying test – 24 gold reference samples (10 for silver)
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Bar test - 11 bars inspected in London; 5 bars tested by two referees
The LBMA Assaying & Refining Seminar 7-8 March 2011
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Technical Assessment
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LBMA reference samples •
produced to LBMA specifications by 5 referees
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Controlled by the LBMA Executive
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May be provided to bona fide applicants for self testing
Testing of samples and bars by Referees •
Double blind basis (the Referee is ignorant of the identity of the refiner and vice versa)
Appointment of the International Referees Panel
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Until 2003 only two referees (JM & Engelhard-CLAL) - both UK
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2001-2003: Applications for expanded referees panel were evaluated
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Each applicant had to manufacture homogeneous reference samples (16x100 10g gold samples and 10x30 30g silver samples) and demonstrate accuracy and precision in assaying
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New panel appointed in December 2003: •
Japan
Tanaka
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South Africa
Rand Refinery
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Switzerland
Argor Heraeus Metalor PAMP
The LBMA Assaying & Refining Seminar 7-8 March 2011
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Role of the Referees
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Manufacture of reference samples
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Testing of sample bars provided by GD applicants
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Assaying of dip samples provided during Proactive Monitoring
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Provision of advice to LBMA Executive on technical matters
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Acting as Advisory Committee for Assaying and Refining Seminar
Physical Defects • • • • • • • • • • • • • • • • • • • •
Button-like defects Cracks and fissures Exuding voids Flaky edges Flattened nodules and ridges Former marks Surface pits or holes Layering Sharp ledges Poor marks Missing marks Mould Marks Nodules and Ridges Rough Surfaces Sharp edges Excessive Shrinkage Shrinkage Cavity Stacking problems Voids Wedge shape
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Defects (fortunately not typical!)
Detecting Internal Defects using Ultrasound • High frequency sound waves reflect off internal voids and foreign bodies • Used for investigating suspect bars, eg with button-like defects
The LBMA Assaying & Refining Seminar 7-8 March 2011
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Proactive Monitoring
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Introduced in 2004
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Rolling three-year retesting of all refiners on the List
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Focus on refining and assaying ability
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Now a great success – adds credibility to the LBMA and the listed refiners
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No other institution does this (base or precious)
Good Delivery Users the International Dimension - Exchanges The LBMA List is used in various ways by a number of exchanges to define their locally accepted brands brands, including: •
Tocom
• Indian Commodity Exchange Ltd.
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Istanbul Gold Exchange
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Dubai Gold and Commodities Exchange
• Multi Commodity Exchange of India Ltd.
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Shanghai Futures Exchange
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NYSE-Liffe
The LBMA Assaying & Refining Seminar 7-8 March 2011
• National Commodity & Derivatives Exchange Ltd, India p Exchange, g , India • National Spot • Singapore Mercantile Exchange
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Good Delivery Accreditation the International Dimension - Investment Many investors have unallocated gold and silver accounts with London banks This metal is overwhelmingly held by the banks in the form of GD banks. bars. Many Exchange Traded Funds hold gold and silver as allocated metal in the London vaults or elsewhere. The great majority specify that their holdings are exclusively GD bars. The major ones include: Gold Bullion Securities SPDR Gold Shares iiShares Shares COMEX Gold Trust Julius Baer Physical Gold Fund
Sprott Physical Gold Trust ETFS Physical Swiss Gold Shares ETFS Physical Silver Shares iShares Silver Trust
Good Delivery Users the International Dimension – the Official Sector The Bank of England acts as gold custodian for about 100 customers, including central banks and international financial institutions, LBMA members and the UK government.
The LBMA Assaying & Refining Seminar 7-8 March 2011
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Good Delivery Users the International Dimension - Investment •
Many investors have unallocated gold and silver accounts with London banks. This metal is overwhelmingly held by the banks in the form of GD bars.
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Many Exchange Traded Funds hold gold and silver as allocated metal in the London vaults or elsewhere. The great majority specify that their holdings are exclusively GD bars. These include:
Supporting the GD List
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Maintenance of the list is the LBMA’s single largest expense
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The LBMA is asking exchanges and funds which use the List to support the work financially
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The LBMA will provide enhanced information about the List to the Exchanges and funds which refer to it
The LBMA Assaying & Refining Seminar 7-8 March 2011
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Reference Materials
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Programme initiated following discussion at the 2007 Assaying and Refining Seminar
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Gold and Silver: used for validating calibration of instruments
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1 set consists of two materials with differing levels of ~ 20 trace elements
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Manufactured by Tanaka (gold) and Krastsvetmet (silver)
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Collaborative analysis involving 10 GD laboratories to determine reference f values l
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Project completed in 2009/2010
Proficiency Testing for Fire Assaying of Gold • • • • • •
Based on assay testing of a 2.5 g sample in the fineness range 995-996 or possibly wider Open p only y to GDL refiners, but not obligatory g y Minimum participation will be required Anonymity guaranteed but participants will be listed in an appendix Once a year Estimated cost £125 per year (not including the cost of the metal)
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