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FAQs
- 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?
- Who calculates the underlying DJ-AIGCISM commodity indices, 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 is the credit risk for investors?
- What would happen if ETF Securities were to go bankrupt?
- Are ETCs eligible investments for PEPs, ISAs or SIPPs?
- 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 ETCs subject to Stamp Duty or Stamp Duty Reserve Tax?
- Are there other tax considerations for investors?
- What is the difference between ETCs and certificates or turbos?
- Why have ETF Securities introduced new ETCs that offer exposure to different maturities (i.e. ETFS Brent 1yr, ETFS Forward Agriculture)?
- Are ETCs covered by the FSA compensation scheme?
- Who regulates ETF Securities and ETCs?
FAQs for Short/ Leveraged ETCs
- Can I lose more than my initial investment while investing in Short/ Leveraged ETCs?
- The Index which the Short/ Leveraged ETC is tracking has moved by 'x' %, yet my Short / Leveraged ETC has only moved 'y'%. Why doesn't the ETC track the exact movement of the Index?
- Do I have to invest more collateral (as margin) if the index moves against me?
- Do I need to borrow stock to buy a Short ETC?
FAQs
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 approximately US$2 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.
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?
The Issuers are special purpose vehicles (SPVs) created to issue ETCs: ETFS Oil Securities Limited is the Issuer for 8 Oil Securities, ETFS Commodity Securities Limited is the Issuer for 29 ETFS Commodity Securities and ETFS 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 Oil Securities are priced directly off oil futures, and the specific formula is available in the Prospectus. ETFS Commodity Securities are priced directly off the underlying DJ-AIG Commodity IndexSM sub-indices. 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. Who calculates the underlying DJ-AIGCISM commodity indices, and where is the information published?
Dow Jones and AIG-FP calculate the DJ-AIG Commodity IndexSM and sub-indices each trading day based on the relevant closing/settlement price(s) published by Dow Jones (at www.djindexes.com/mdsidx/?event=showAigHome) and distributed through many data distributors, including Bloomberg and Reuters.
8. Do ETCs track the underlying commodity price?
ETCs priced off futures are almost 100% correlated with the underlying commodity price, however the spot price return is not an investable return. ETCs are designed to earn a return similar to that which could be earned from investing in the underlying commodity futures markets.
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.
9. Do ETCs make interest payments?
ETFS Oil Securities and ETFS Commodity Securities are total return securities, and as such earn a collateral yield (interest rate) that is capitalised into the price of the security. No dividends are paid. ETFS (physical) Metal Securities pay no interest or dividends.
10. Why are some ETCs priced off futures and some priced directly off physical metals?
Some ETCs (ETFS Oil Securities and ETFS Commodity Securities) are priced off futures as it is not possible to store - for long periods - some physical commodities. In addition, futures pricing can be more liquid and efficient for some commodities, especially where the futures contract helps to standardize the pricing - for example, agricultural commodities where quality can vary between crops, seasons and regions. 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.
11. 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.
12. 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).
13. What is the credit risk for investors?
ETFS Oil Securities are backed by commodity contracts purchased from the Shell group.
ETFS Commodity Securities are backed by commodity contracts purchased from AIG Financial Products Corp. and guaranteed by American International Group, Inc.
ETFS (physical) Metal Securities are backed by allocated Bullion held by the Custodian HSBC N.A.); allocated Bullion bars carry no credit risk.
14. What would happen if ETF Securities were to go bankrupt?
If in the unlikely situation ETF Securities were to go bankrupt, this would not affect the value of the ETCs. Each ETCs is issued by a Special Purpose Vehicle whose assets are ring-fenced for investor's safety and the activities for each Issuer is monitored by an independent Trustee. ETF Securities does not hold any investor money - all cash and commodities exposure is outsourced to AA rated companies.
15. Are ETCs eligible investments for PEPs, ISAs or SIPPs?
All ETFS-branded ETCs are eligible investments for PEPs, ISAs and SIPPs.
16. 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.
17. 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.
18. 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.
19. Are ETCs subject to Stamp Duty or Stamp Duty Reserve Tax?
ETFS-branded ETCs are not subject to Stamp Duty or Stamp Duty Reserve Tax.
20. Are there other tax considerations for investors?
Investors should consult their own professional advisers as to the implications of their subscribing for, purchasing, holding, switching or disposing of ETCs under the laws of the jurisdiction in which they may be subject to tax. Tax legislation may change.
21. 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.
22. Why have ETF Securities introduced new ETCs that offer exposure to different maturities (i.e. ETFS Brent 1yr, ETFS Forward Agriculture)?
Because the ETCs are priced off underlying commodity futures markets, this provides the possibility of having different price exposures along the commodity futures curve. ETF Securities now provides an entire commodity platform allowing investors more choice and the ability to undertake a wider range of investment strategies.
23. 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.
24. 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.
FAQs for Short/ Leveraged ETCs
1. Can I lose more than my initial investment while investing in Short/ Leveraged ETCs?
No, for example if you were to buy $100 worth of Short or Leveraged ETCs there is a possibility that over a period of time the amount invested could fall to zero if the index the ETC is tracking moves against you. However, the investor can never lose more than that original investment.
2. The Index which the Short/ Leveraged ETC is tracking has moved by 'x' %, yet my Short / Leveraged ETC has only moved 'y'%. Why doesn't the ETC track the exact movement of the Index?
The Short or Leveraged ETC is designed to track -1 or 2 times the daily % change of the index not the $ movement of the corresponding Index. For periods greater than one day, the return may not equal -1 or 2 times the change in the Index.
3. Do I have to invest more collateral (as margin) if the index moves against me?
No, because the position is 100% collateralised.
4. Do I need to borrow stock to buy a Short ETC?
No, there is no need to borrow stock to buy a Short ETC. A Short ETC is designed to allow investors to buy an investment with short exposure without the usual hassles associated with borrowing stock and selling short into the market.
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