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LONDON: A group of banks that partnered with the London Metal Exchange (LME) to launch gold and silver futures in 2017 is preparing to abandon the project after hoped-for volumes did not materialise, three sources with direct knowledge of the matter said.

Such a move would end an attempt by the LME, which dominates industrial metals trading, to capture part of London’s bullion market, which is the world’s largest with gold worth some $17 trillion changing hands last year.

The LME launched the contracts with partners including Goldman Sachs and Morgan Stanley, who agreed to promote trade in them in return for 50% of revenues generated.

The project partners had hoped tightening regulation would push bullion trading in London away from over-the-counter (OTC) deals between banks and brokers to exchanges, which regulators see as safer and more transparent.

But the biggest dealers, which include JPMorgan and HSBC, shunned the contracts, and after Societe Generale, one of the LME’s partners, closed most of its commodities business in 2019, trading dwindled to nothing.

Three sources at banks partnered with the LME said they would meet in coming months. Two said if nothing had changed they would pull out. The third said it was clear the contracts had not been successful and the LME deal was up in the air.

“There’s not been anyone who is keen on keeping it,” one of the sources said, adding that his bank was paying “a couple of hundred grand a year” to maintain the contracts and had millions of dollars locked up in a default fund for them.

The deal with its partners had an initial term of five years, LME chief executive Matt Chamberlain told Reuters. “It’s very possible they choose not to continue after 2022,” he said.

Others that partnered the LME are ICBC Standard, Natixis, proprietary trader OSTC and the World Gold Council (WGC), an industry body.

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