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FAQs for ETCs
- Who is ETF Securities (ETFS)?
- What are Exchange Traded Commodities (ETCs)?
- Are ETCs very similar to Exchange Traded Funds (ETFs)?
- How do I buy and sell an ETC?
- Who is the Issuer?
- How are ETCs priced and where is the information published?
- Do ETCs track the underlying commodity price?
- Do ETCs make interest payments?
- Why are some ETCs priced off futures and some priced directly off physical metals?
- How can you guarantee the tracking error remains minimal?
- How is liquidity provided?
- What would happen if ETF Securities were to go bankrupt?
- What is the credit risk of the different ETCs?
- Are there any other costs besides Management Fees?
- My broker indicated she/he cannot buy the product because it is in USD. What can I do?
- Can investors lose money?
- Are there other tax considerations for investors?
- What is the difference between ETCs and certificates or turbos?
- Who regulates ETF Securities and ETCs?
- Can I take physical delivery of my bullion?
- Has the cessation of the Lyxor marketing agreement had any impact to the structure of Gold Bullion Securities?
- Do Australian investors need to sign a Warrant Agreement form to trade the ASX listed Exchange Traded Commodities?
FAQs for ETCs
1. Who is ETF Securities (ETFS)?
ETF Securities is the pioneer and leader in Exchange Traded Commodities (ETCs). The management of ETF Securities Limited created the world's first ETC in 2003 - Gold Bullion Securities in Australia and London which now has over US$3 billion in assets. In 2005, ETF Securities created the world's first oil ETC and then in 2006 ETF Securities created the world's first ETC platform on the London Stock Exchange, making available 19 commodities and 10 indices. In 2007, ETF Securities created the world's first physically backed precious metals ETC platform, making available platinum and palladium for the first time ever. ETF Securities has most recently launched the largest platform of thematic sector ETFs in Europe providing exposure to European firsts such as Coal, Steel, Shipping and Nuclear Power.
Now investors can trade all the world's major commodities on the same exchange and in the same time zone.
2. What are Exchange Traded Commodities (ETCs)?
ETCs are simple and transparent open-ended securities which trade on regulated exchanges. ETCs enable investors to gain exposure to commodities without trading futures or taking physical delivery. ETFS-branded ETCs are secured, undated, zero coupon notes that are designed to accurately track the underlying commodity index or individual commodity.
3. Are ETCs very similar to Exchange Traded Funds (ETFs)?
ETCs are very similar to ETFs because they are both open-ended, continuously traded and have multiple market makers. The main difference is that ETCs use a secured, undated, zero coupon note structure, whereas ETFs typically use a fund structure.
4. How do I buy and sell an ETC?
Investors can buy and sell ETCs throughout the trading day on regulated stock exchanges through ordinary brokerage accounts.
5. Who is the Issuer?
ETFS Australian Metal Securities Limited is the issuer of 5 physically backed precious metal ETCs. The assets of each Issuer and class of security are ring-fenced for investor protection. The Issuers are administered by ETF Securities Limited.
6. How are ETCs priced and where is the information published?
ETFS Metal Securities are priced directly off the spot price of the four relevant precious metals. Detailed pricing is available for all securities on the ETF Securities website.
7. Do ETCs track the underlying commodity price?
ETCs which are physically backed are priced directly off the metal spot price and therefore returns are 100% correlated to the underlying price. These ETCs track the precious metals price less fees.
8. Do ETCs make interest payments?
ETFS (physical) Metal Securities pay no interest or dividends.
9. Why are some ETCs priced off futures and some priced directly off physical metals?
In the case of our ETFS (physical) Metal Securities, precious metals are homogenous, can be stored easily and do not decay, and therefore can be priced directly off the underlying physical commodity.
10. How can you guarantee the tracking error remains minimal?
Similar to ETFs, ETCs are open-ended securities, and therefore Authorised Participants (who are generally investment banks with commodities expertise) can create or redeem ETCs at their underlying value or NAV.
11. How is liquidity provided?
ETCs are open-ended, therefore new ETCs can be created by Authorised Participants according to demand. Therefore, the liquidity of ETCs reflects the liquidity of the relevant underlying commodity market(s).
12. What would happen if ETF Securities were to go bankrupt?
If ETF Securities were to go bankrupt, this would not affect the value of the ETCs. Each ETC is issued by a Special Purpose Vehicle whose assets are ring-fenced for investor's safety and the activities for each Issuer are monitored by an independent Trustee. ETF Securities does not hold any investor money at any time.
13. What is the credit risk of the different ETCs?
A number of different SPVs have been set up to issue different ETCs depending on the objective and its counter-parties.
- ETFS (physical) Metal Securities Ltd. - all bullion is held in allocated London good Delivery bars by the custodian, HSBC. In the event HSBC were to go bankrupt, the Issuer (and Trustee) would take control of the metal. In the event that ETF Securities were to go bankrupt then the Trustee and an Administrator would take control of the allocated metal which should have no effect on the value of the ETCs since the Issuer is ring-fenced from ETF Securities.
- Gold Bullion Securities Ltd. - all bullion is held in allocated London good Delivery bars by the custodian, HSBC. In the event HSBC were to go bankrupt, the Issuer (and Trustee) would take control of the gold bullion. In the event that ETF Securities were to go bankrupt then the Trustee and an Administrator would take control of the allocated metal which should have no effect on the value of the ETCs since the Issuer is ring-fenced from ETF Securities.
14. Are there any other costs besides Management Fees?
No, although your broker or financial advisor will also charge you normal transactions costs (commissions) associated with the purchase or sale of ETCs
15. My broker indicated she/he cannot buy the product because it is in USD. What can I do?
Your broker or financial advisor should be able to buy or sell ETCs as they are listed on regulated exchanges. Most brokers should be able to convert a USD amount to another currency. If not, please send us an email or contact ETF Securities directly, and we will put you in touch with a broker that can execute your order.
16. Can investors lose money?
The price of ETCs can go up or down, however investors cannot lose more than the amount of the initial investment.
17. What is the difference between ETCs and certificates or turbos?
ETFS Oil Securities and ETFS Commodity Securities ETCs are open-ended securities backed by commodity contracts purchased from the Shell group and AIG Financial Products Corp., and multiple market makers ensure tight bid-offer spreads for trading on regulated exchanges. Certificates or turbos are notes created, priced and traded by issuing banks - there are no creations/redemptions on demand and they are generally less liquid.
18. Are ETCs covered by the FSA compensation scheme
ETCs are not a fund structure and the ETC Issuer is a Jersey incorporated company and are not part of the FSA compensation scheme.
19. Who regulates ETF Securities and ETCs
ETF Securities and its issuing subsidiaries are all incorporated in Jersey and are regulated by the Jersey Financial Services Authority. The company and those that provide administrative services to the company all require licences issued by the JFSC to conduct the business. The ETCs themselves are issued pursuant to a prospectus approved by the FSA, which acts as the home regulator of such.
20. Can I take physical delivery of my bullion?
For the physically backed ETCs you can arrange for physical delivery of the bullion. This includes Gold Bullion Securities Limited and Metal Securities Limited.
21. Has the cessation of the Lyxor marketing agreement had any impact to the structure of Gold Bullion Securities?
Lyxor were marketing agent for Gold Bullion Securities. Lyxor had no ownership rights to the company. All operations and management of the Issuer and ETC stays the same without any impact on the Issuer and ETC.
22. Do Australian investors need to sign a Warrant Agreement form to trade the ASX listed Exchange Traded Commodities?
No, they do not need to sign a Warrant Agreement form. All ETCs trading on the ASX via the AQUA platform trade and settle just like regular listed securities, which do not require a form to be signed. Whereas if investors would like to trade Warrants via AQUA, they will need to sign the relevant agreement form to do so.
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