* Precious metals benchmarks revamped in 2014
* Bullion market transformation at infant stage
* Clearing trades on exchanges could be next step
By Clara Denina
Nov 9 (Reuters) - Calling time on London's century-old gold "fix" could mark the beginning of an even wider industry overhaul that may ultimately dilute the dominance of the highly profitable bilateral over-the-counter trading.
London's bullion price benchmarks, or fixes, were transformed in a matter of months this year as regulatory scrutiny and accusations of market manipulation made price-setting among a handful of banks untenable.
The overhaul spawned electronic price setting platforms for gold, silver, platinum and palladium, with gold's fate sealed just last week when Intercontinental Exchange were announced as administrators for the prized bullion benchmark in early 2015.
So, no more telephone calls between four banks twice a day, but an automated and audited process that should guarantee that customers, including producers, refiners and central banks, continue to have a reference price that values their holdings.
The changes were brought in to reduce any risk of price manipulation, such as that found in lending rates between banks with the LIBOR scandal in 2012.
More than $5 trillion worth of gold transactions are made over the counter in London every year. The OTC market, where trades are executed via dealer networks as opposed to a centralized exchange, exceeds the trading of gold futures.
But as regulators investigate the transparency of global financial markets and banks recoil from investigations, sources say the industry is now open to more drastic reforms.
"No-one would have believed a year ago that within 2014 the market would have changed so completely ... you can now imagine the market also contemplating certain changes they would have never previously looked at," Jonathan Spall, managing director of GCubed Metals, said.
"The market could go to a cleared model on exchanges, for example," he added.
The precious metals OTC market went through a period of caution in late 2008, when traders struggled to make business bilaterally because credit lines were blocked after the collapse of U.S. investment bank Lehman Brothers and the subprime mortgage-induced financial crisis.
Bullion banks felt the need to curb counterparty risk, fearing a surge in company defaults. So the London Metal Exchange (LME) and the Chicago Mercantile Exchange rushed to provide clearing facilities for gold forwards.
But the perception of reduced credit risks and the idea that the switch to a cleared central counterparty (CCP) from bilateral trades would be more expensive cooled London bullion banks' enthusiasm for such a service.
Volumes have barely grown on the platforms available.
Six years on, however, the desire to move to a cleared solution seems stronger as regulation becomes more stringent and banks are forced by their compliance departments to step away from risky trades and transactions.
New rules on OTC derivatives are expected in Europe by 2016, while UK gold and silver are likely to become regulated markets in the first few months of 2015.
"I think there will be changes, depending on how the regulation comes in," the London Bullion Market Association CEO Ruth Crowell said.
"My hope with that is that the changes can be something that ultimately grows the market, not that over-regulates it. Otherwise we would see people exiting and going to other jurisdictions due to the cost of doing business in London," she said, adding that Asia does not have the same regulatory burden.
The LBMA, which is consulting with its market makers members including JP Morgan, Barclays and HSBC and others about what infrastructure should provide the industry going forward, said it has not yet considered whether it would be responsible for a cleared model.
While Western banks continue to exit the commodity space, mostly consolidating bullion on their foreign exchange platforms, China started to allow foreign banks to import bullion, hoping to make Shanghai a price-discovery centre that might eventually rival London.
State-run Shanghai Gold Exchange launched an international exchange this year, allowing foreign participants to trade directly, and is also in talks to launch gold forwards and options.
The launch of the SGE's yuan-denominated contracts is the first in a slew of bullion contracts expected in Asia, including Singapore and Hong Kong, before the end of the year as the region aims to have pricing power as the top consumer of the metal. (Reporting by Clara Denina. Editing by Veronica Brown and Tom Heneghan)