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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?
- 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?
- 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?
FAQs for ETFs
- Who is ETF Securities (ETFS)?
- 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 ETFs?
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 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 ETFS Brent Oil Securities and ETFS WTI 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. Are ETCs eligible investments for PEPs, ISAs or SIPPs?
All ETFS-branded ETCs are eligible investments for PEPs, ISAs and SIPPs.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. 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.
FAQs for ETFs
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. 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 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. ETFS branded ETFs are UCITS III funds that are designed to accurately track the underlying index.
3. 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.
4. Who is the Issuer?
The Issuer is ETFS Fund Company plc, which is an Irish domiciled open-ended investment company having segregated liability between its sub-funds and is authorised by the Irish Financial Regulator as a UCITS.
5. How are ETFs priced and where is the information published?
ETFS’ range of ETFs is 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.
6. Do ETFs make dividend payments?
ETFS’ range of ETFs do not pay dividends to investors. Any income received by the funds in the form of dividends is reinvested in the fund.
7. 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 to ensure that the funds price does not trade at a premium or discount to the NAV.
8. How is liquidity provided?
ETFs are open-ended, therefore new ETFs can be created by Authorised Participants according to demand. Therefore, the liquidity of an ETF reflects the liquidity of the relevant underlying equities.
9. What is the credit risk for investors?
The fund structure is very robust and complies with UCITS III regulations and there is segregated liability between the assets of each sub-fund. The majority of the funds exposure is to short maturity securities from very high quality issuers. The index management is effected through collateralised swap contracts provided by multiple counterparties. This ensures that the ultimate risk to investors is minimal.
10. 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 ETFs. Each ETFs is a standalone fund whose assets are sregregated for investor's safety. ETF Securities does not hold any investor money - all cash and exposure management is outsourced to highly rated third party providers.
11. Are ETFs eligible investments for ISAs, SIPPs and CTFs?
All ETFS-branded ETFs are eligible investments for ISAs, SIPPs and CTFs.
12. 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 ETFs.
13. 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 investment.
14. Are ETFs subject to Stamp Duty or Stamp Duty Reserve Tax?
ETFS-branded ETFs are not subject to Stamp Duty or Stamp Duty Reserve Tax.
15. Do ETFs hold UK distributor status?
ETFS branded ETFs will seek to achieve UK distributor status
16. 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.
17. What is the difference between ETFs and traditional index tracking funds?
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ETF |
Index Tracker |
| Exchange Traded |
Yes |
No |
| Intra day dealing |
Yes |
No |
| Low cost |
Yes |
Can be very high |
| Forward priced |
No |
Yes |
| Transparent |
Yes |
Yes |
| Stamp Duty (UK) |
No |
Yes |
| Dealing costs |
No |
Can be very high |
| Buy and sell through any broker |
Yes |
No |
| Range of exposures |
Very large |
Normally limited to large equity markets |
18. Are ETFs covered by the FSA compensation scheme?
ETFs are covered by the FSA compensation scheme.
19. Who regulates ETF Securities and ETFs?
ETF Securities range of ETFs are domiciled in Ireland and authorised by the Financial Regulator in Ireland (IFSRA).
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