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FAQs for ETFs
- Who is ETF Securities?
- What is ETF Exchange (ETFX)?
- What are Exchange Traded Funds (ETFs)?
- How do I buy and sell an ETF?
- Who is the Issuer?
- How are ETFs priced and where is the information published?
- Do ETFs make dividend payments?
- How can you ensure 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 ETFs eligible investments for ISAs, SIPPs and CTFs?
- Are there any other costs besides Management Fees?
- Can investors lose money?
- Are ETFs subject to Stamp Duty or Stamp Duty Reserve Tax?
- Do ETFs hold UK distributor status?
- Are there other tax considerations for investors?
- What is the difference between ETFs and traditional index tracking funds?
- Are ETFs covered by the FSA compensation scheme?
- Who regulates ETF Securities and its ETFs?
FAQs for ETFs
1. Who is ETF Securities?
ETF Securities is a leading specialist provider of exchange-traded investment products. Since inception, the firm has been dedicated to providing investors with access to innovative investment solutions and continues to launch award-winning products across a broad range of markets and strategies.
What began with the world’s first listing of an Exchange Traded Commodity back in 2003 has grown to become one of the most comprehensive ranges of commodity- and currency-based ETCs in the world. For further information, please visit: www.etfsecurities.com
2. What is ETF Exchange (ETFX)?
Exchange-traded funds (ETFs) are open-ended, cost-effective, UCITS-compliant investment funds which are designed to track the performance of specified market indices. They are listed on regulated stock exchanges and trade and settle like individual shares.
ETF Exchange is a unique ETF platform. Enhanced by a consortium of leading global investment banks, ETF Exchange is dedicated to providing access to premium, cost-effective and flexible investment solutions.
First introduced in September 2008 by exchange-traded commodity pioneers ETF Securities, all funds on the platform are collateralised and employ total return swaps to replicate index performance.
The platform is designed to help mitigate credit risk, disperse counterparty exposure and reduce tracking error and liquidity – enabling investors to concentrate on making the most appropriate investment decisions
3. What are Exchange Traded Funds (ETFs)?
ETFs are low cost, transparent, index tracking funds which trade on regulated stock exchanges. ETFs enable investors to gain exposure to well-known equity indices or sectors in one trade as easily as buying any ordinary share. ETFX-branded ETFs are UCITS funds that are designed to accurately track the underlying index (excluding fees and expenses).
4. How do I buy and sell an ETF?
Investors can buy and sell ETFs throughout the trading day on regulated stock exchanges through ordinary brokerage accounts.
5. Who is the Issuer?
The Issuer is ETFX Fund Company plc, which is an Irish domiciled open-ended investment company having segregated liability between its sub-funds and is authorised by the Central Bank of Ireland as a UCITS.
6. How are ETFs priced and where is the information published?
ETFX’s range of ETFs are typically priced off the underlying equity index which they are designed to track. They have a Net Asset Value which is calculated once a day. More information on pricing of ETFs is available on the ETF Securities website.
N.B. The one exception to this, is the ‘COMF’ ETF which tracks commodity futures.
7. Do ETFs make dividend payments?
ETFX’s range of ETFs do not pay dividends to investors. Any income received by the in the form of dividends (if any) is reinvested in the ETF.
8. How can you ensure the tracking error remains minimal?
ETFs are open-ended funds, and therefore Authorised Participants (who are generally investment banks) can create or redeem ETFs at their underlying value or NAV. This helps promote ETF pricing that does not trade at a premium or discount to the NAV.
9. How is liquidity provided?
ETFs are open-ended, therefore new ETFs can be created by Authorised Participants according to demand. Liquidity can be measured in a number of ways: the AUM of the ETF, the daily traded volumes, or the liquidity of the relevant underlying equities.
10. What is the credit risk for investors?
The structure is UCIT compliant, with segregated liability between the assets of each ETF. Performance is achieved through collaterised swap contracts provided by multiple swap providers (the investment banks). ETFs therefore can have counterparty exposure to the investment banks, proportional to the value of the swaps provided by each bank. This exposure however is mitigated by the provision of collateral to the relevant ETF by the banks. The value of the collateral provided represents 100%-110% of the value of the swap contracts. The variation in percentage being dependent on the type of collateral provided. This collateral is also UCITS-compliant, and published daily on the ETF Securities website. This collateral is not used for stock lending.
11. What would happen if ETF Securities were to go bankrupt?
If in the unlikely situation ETF Securities was to go bankrupt, this would not affect the value of the ETFs. Each ETF is a standalone fund whose assets are segregated for investor's safety. ETF Securities does not hold any investor money – instead cash collateral is held via highly rated third party providers. Bank of New York Mellon provides custody, administration, collateral and trustee services to ETFX.
12. Are ETFs eligible investments for ISAs, SIPPs and CTFs?
All ETFX-branded ETFs are eligible investments for ISAs, SIPPs and CTFs.
13. Are there any other costs besides Management Fees?
Your broker or financial advisor may charge you normal transaction costs (commissions) associated with the purchase or sale of ETFs. It is also important to note however that there is typically a cost associated with swap provision. This varies by ETF, and will impact the tracking error of the ETF (i.e. ETF performance vs. index performance).
14. Can investors lose money?
The price of ETFs can go up or down with the market, however investors cannot lose more than the amount of the initial direct investment in the ETF.
15. Are ETFs subject to Stamp Duty or Stamp Duty Reserve Tax?
ETFX-branded ETFs are not subject to Stamp Duty or Stamp Duty Reserve Tax.
16. Do ETFs hold UK distributor status?
The ETF Exchange products have historically had UK distributor status. This has now been replaced by Reporting Fund Status (RFS). Under Regulation 55(1) (a) of The Offshore Funds (Tax) Regulations 2009 on behalf of HM Revenue and Customs they have accepted the following funds into the Reporting Fund regime with effect from the dates listed.
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With effect from |
| ETFX AEX Fund |
24/03/2010 |
| ETFX AMX Fund |
09/12/2010 |
| ETFX CAC 40 2x Long Fund |
01/07/2010 |
| ETFX CAC 40 2x Short Fund |
01/07/2010 |
| ETFX DAX 30 2x Long Fund |
01/07/2010 |
| ETFX DAX 30 2x Short Fund |
01/07/2010 |
| ETFX DAXglobal Alternative Energy Fund |
01/07/2010 |
| ETFX DAXglobal Coal Mining Fund |
01/07/2010 |
| ETFX DAXglobalGold Mining Fund |
01/07/2010 |
| ETFX DAXglobal Shipping Fund |
01/07/2010 |
| ETFX DAXglobal Steel Fund |
01/07/2010 |
| ETFX Dow Jones Brookfield Emerging Markets Infrastructure Fund |
01/03/2011 |
| ETFX Dow Jones Brookfield Global Infrastructure Fund |
01/03/2011 |
| ETFX Dow Jones Global Select Dividend Fund |
01/03/2011 |
| ETFX Dow Jones-UBS Commodity 3 Month Forward |
15/03/2010 |
| ETFX EURO STOXX 50 Double Short (2x) Fund |
01/07/2010 |
| ETFX EURO STOXX 50 Leveraged (2x) Fund |
01/07/2010 |
| ETFX FTSE 100 Leveraged (2x) Fund |
01/07/2010 |
| ETFX FTSE 100 Super Short (2x) Fund |
01/07/2010 |
| ETFX FTSE MIB Leveraged (2x) Fund |
28/05/2010 |
| ETFX FTSE MIB Super Short Strategy (2x) Fund |
28/05/2010 |
| ETFX Russell 1000 US Large Cap Fund |
01/07/2010 |
| ETFX Russell 2000 US Small Cap Fund |
01/07/2010 |
| ETFX S-Net ITG Global Agri Business Fund |
01/07/2010 |
| ETFX S-Network Global Water Fund |
01/07/2010 |
| ETFX STOXX 600 Basic Resources Fund |
01/07/2010 |
| ETFX STOXX 600 Oil & Gas Fund |
01/07/2010 |
| ETFX STOXX 600 Utilities Fund |
01/07/2010 |
| ETFX WNA Global Nuclear Energy Fund |
01/07/2010 |
| ETFX-BofAML IVSTOXX ETF |
28/02/2011 |
17. 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 and/or disposing of ETFs under the laws of the jurisdiction in which they may be subject to tax. Tax legislation may change.
18. What is the difference between ETFs and traditional index tracking funds?
| |
ETF |
Index Tracker |
| Exchange Traded |
Yes |
No |
| Intra day dealing |
Yes |
No |
| Low cost |
Yes |
Varies |
| Forward priced |
No |
Yes |
| Transparent |
Yes |
Yes |
| Stamp Duty (UK) |
No |
Yes |
| Buy and sell through any broker |
Yes |
No |
| Range of exposures |
Broad |
Normally limited to large equity markets |
19. Are ETFs covered by the FSA compensation scheme?
ETFs are covered by the FSA compensation scheme.
20. Who regulates ETF Securities and ETFs?
The issuer and manager of ETFX’s range of ETFs are both domiciled in Ireland and are authorised by the Central Bank of Ireland. ETF Securities (UK) Limited is authorised and regulated by the Financial Services Authority (FSA).
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