Loco London / Clearing
LPMCL clearing data is available here.
The Loco London market, which is a principal-to-principal or Over The Counter (OTC) market, is the most widely traded global market for precious metals namely, gold, silver, platinum and palladium. London Precious Metals Clearing Limited (“LPMCL”) is at the heart of the Loco London clearing of these metals.
LPMCL members offering clearing services utilise the unallocated precious metals accounts they maintain with each other, not only for the settlement of mutual trades but also for trades of their third party counterparties worldwide for whom they maintain unallocated metals accounts and provide clearing facilities. This is achieved via LPMCL’s electronic Aurum matching system.
Further information on the loco London clearing process can be obtained by viewing the London Bullion Market Association website.
The LBMA has, in a joint collaboration with the LPMCL and LPPM, published a Guide to the Global OTC Precious Metals Market. It is designed to be the definitive Guide as to how the market operates and provides an essential source of reference for members, investors, clients and all industry stakeholders. View a copy of the Guide from the LBMA's website here.
The four London bullion clearing members each maintain confidential secure vaulting facilities within central London locations, using either their own premises, or those of a secure storage agent, which are used to process and store precious metals (gold, silver, platinum and palladium) for both the member and those clients who require custodial storage, (including some Central Banks).
Note: two key features to bear in mind are that these vaulting facilities enable the depositories to process large physical transactions with a high degree of confidentiality, also, these vaults provide the potential of some modest income from client storage requirements.
These clearing and vaulting services help facilitate physical precious metal movement logistics, location swaps, quality swaps and liquidity management.
The LPMCL continues to work closely with the LBMA to maintain an orderly and efficient Loco London bullion clearing service and to facilitate the international trading on the over the counter precious metal market centred in London.
The most widely traded market for precious metal dealing globally is for delivery of metal in London. Consequently, the volume of loco London metal settlements between counterparties requires an effective and efficient daily clearing system of paper transfers, which avoids the security risks and costs inherent in the physical movement of metal. LPMCL which is operated by five market making members of The London Bullion Market Association (LBMA), provides an electronic matching system to effect the daily settlements.
Each member of LPMCL is a signatory to a code of practice on clearing under which members undertake to operate unallocated precious metal accounts between themselves. These are utilised for the settlement of both mutual trades and on behalf of the clients of the London precious metal market.
Figures for amounts of gold and silver cleared are collected monthly by the LBMA from the four LPMCL clearing members.
The amount of metal transferred on average each day measured in millions of troy ounces.
The value measured in US$, using the monthly average pm LBMA Gold Price for gold and the monthly average LBMA Silver price for silver.
- Number of transfers
The average number recorded each day.
The figures include:
- Loco London book transfers from one party in a LPMCL clearing member’s books to another party in the same member’s books or in the books of another LPMCL clearing member.
- Physical transfers and shipments by LPMCL clearing members.
- Transfers over LPMCL Clearing Members’ accounts at the Bank of England.
- Allocations for LPMCL clearing members where the sole purpose is to reduce overnight credit exposures.
- Physical movements arranged by LPMCL clearing members in locations other than London
The basic unit of loco London Good Delivery gold is the 400 ounce/12.5 kilogram (approximately) gold bar, minimum 995.0 fine, while the standard London Good Delivery silver bar is 1,000 ounces/30 kilogram (approximately), minimum 999 fineness. Deliveries usually take place at the vault of a clearing member of LPMCL, unless alternative arrangements have been made between the counterparties. Some members are prepared to arrange physical shipments on behalf of their customers and will, upon request, arrange for shipments to most global destinations. Charges for such services, including carriage, freight and insurance are subject to individual negotiation.
Facilities exist for the safekeeping of gold, silver, platinum and palladium in high security vaults. Rates for storage and insurance are subject to negotiation. Metals can be held on allocated or unallocated accounts. Allocated accounts are opened when a customer requires metal to be physically segregated and a detailed list of bar numbers, weights and assay qualities is provided by the vault holder who acts as a custodian on behalf of the client. Unallocated accounts do not entail specific bars being set aside and the customer has a general entitlement to fungible metal. Unallocated accounts are the most convenient and commonly used method of holding gold and silver. The owner is an unsecured creditor of the clearing member.
The diagram above illustrates how trades are settled and cleared between the clearing members. In this example, customers of JP Morgan are represented by 1,2,3 and 4, and the sub-clients of customer 1 by (i), (ii) and (iii). All of these transactions are netted at the end of the day through JP Morgan's account. The other three clearers will also settle their customers and sub-clients through their own accounts in a similar way.