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QUICK LINKS
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FAQs
FAQs for ETCs
FAQs for Oil ETCs
FAQs for Short/ Leveraged ETCs
FAQs for Industrial Metal ETCs
FAQs for ETFs
FAQ for Currency ETCs
FAQs for Physically Backed Precious Metals
FAQs for ETCs
1. Who is ETF Securities (ETFS)? ETF Securities is a provider of Exchange Traded Products (ETFs, Commodity ETCs and Currency ETCs). The management of ETF Securities pioneered the development of ETCs, with the world's first listing of an ETC, Gold Bullion Securities in Australia and London in 2003 and then the world's first entire ETC platform which was listed on the London Stock Exchange in September 2006. ETF Securities now offers more than 270 Exchange Traded Products (ETPs). The ETPs provide investors with a wide variety of investment strategies, with ETPs offering access to asset classes such as equities, currencies and commodities with physical, long, forward, leveraged and short exposure. ETPs are simple to access as they are traded in up to five currencies (EUR, USD, GBP, JPY and AUD) and listed on up to nine major exchanges globally including the London Stock Exchange, the New York Stock Exchange, the Tokyo Stock Exchange, NYSE-Euronext Paris, NYSE-Euronext Amsterdam, Deutsche Börse, Borsa Italiana, the Australian Securities Exchange and the Irish Stock Exchange. 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, limited recourse debt securities that are designed to track underlying commodities or commodity indices. 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, limited recourse debt securitiy 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? ETF Securities’ ETC issuers are special purpose vehicles (SPVs) created to issue ETCs: ETFS Oil Securities Limited is the Issuer for 9 Oil Securities, ETFS Commodity Securities Limited is the Issuer for over 100 commodity ETCs, ETFS Metal Securities Limited is the issuer of 5 physically backed precious metal ETCs ,Gold Bullion Securities is the issuer of 1 physically backed gold ETC and ETFS Industrial Metal Securities Limited is the issuer of 4 physically backed industrial metal ETCs. The assets of each Issuer and class of security are ring-fenced for investor protection. The Issuers are administered by ETFS Management Company (Jersey) Limited. 6. How are ETCs priced and where is the information published? All ETCs are priced using a fixed pricing formula which each use a reference price relating to the relevant underlying commodity or commodity index: The specific pricing formulae are set out in the prospectus(es) of each Issuer. ETFS Oil Securities are priced directly off the closing settlement price of the relevant oil or carbon emissions allowance futures as published by the relevant futures exchange. ETFS Commodity Securities are priced using the closing price of the DJ-UBS Commodity IndexSM sub-indices and published by CME Indexes; ETFS Metal Securities are priced using the PM Fixing spot price of the four relevant precious metals as published by the LMBA (in the case of gold and silver) or LPPM (in the case of platinum and palladium). Gold Bullion Securities are priced using the PM ficing spot price of gold ETFS Industrial Metal Securities are priced using the LME cash settlement price of the relevant industrial metal. 7. Who calculates the underlying DJ-UBSCISM commodity indices, and where is the information published? CME Indexes (formerly Dow Jones) and UBS calculate the DJ-UBS Commodity IndexSM and sub-indices each trading day based on the relevant closing/settlement price(s) published by CME Indexes (at www.djindexes.com) and distributed through many data distributors, including Bloomberg and Reuters. 8. Do ETCs track the underlying commodity price? ETCs which track commodity futures prices are almost 100% correlated (before fees and expenses) with the underlying futures price, however the spot price return is not an investable return. The ETCs are designed to earn a return similar to that which could be earned from investing in the underlying commodity futures markets. ETCs (other than those with a short or leveraged element) which track commodity futures indices are almost 100% correlated (before fees and expenses) with the settlement price of the underlying futures index, however the spot price return is not an investable return. The ETCs are designed to earn a return similar to that which could be earned from investing in the underlying commodity futures index. ETCs which are physically backed are priced directly off the metal spot price and therefore returns are 100% correlated (before fees and expenses) to the underlying price. 9. Do ETCs make interest or dividend payments to investors? No interest or dividend payments are made to investors. 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 the physical precious metals ETCs, 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. Tracking error is also reduced by using fixed pricing formulae which use the price of the underlying as a reference. 12. How is liquidity provided? ETCs are open-ended, therefore new ETCs can be created by Authorised Participants according to demand. The liquidity of ETCs is generally only impacted by the liquidity of the relevant underlying commodity market(s). 13. What would happen if ETF Securities were to go bankrupt? In the event that ETF Securities were to go bankrupt, there should be no impact on the assets of the Issuer as these are ring-fenced from the assets of ETF Securities and are held by the Issuer for the benefit of security holders. 14. What is the credit risk of the different ETCs? Please refer to the Counterparty Risks Educational documents to get an understanding of the credit risk.
All ETFS-branded ETCs are eligible investments for ISAs and SIPPs. 16. Are there any other costs besides Management Fees? As well as any normal transaction costs which your broker or financial advisor will charge you, the following are the costs additional to the Management Fee associated with the ETCs: ETFS Metal Securities: None ETFS Classic Commodity Securities:
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. 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? ETCs are open-ended securities backed by either physical precious or industrial metals or swaps with major financial institutions who are leaders in the respective field, 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(often with no formal exposure to the underlying reference asset) - there are no creations/redemptions on demand and they are generally less liquid. 22. Why have ETF Securities introduced 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. If I invest in ETCs, is my investment covered by the Financial Services Compensation Scheme? The FSCS applies to financial advice and investment firms and not products. ETFs and ETCs are therefore not directly covered by the FSCS. 24. Who regulates ETF Securities and ETCs The prospectus(es) of each ETC issuer is approved by the UK Financial Services Authority in its capacity as UK Listing Authority. The issuers and their manager (ETFS Management Company (Jersey) Limited) are regulated by the Jersey Financial Services Commission. By virtue of the listing of the ETCs on the Official List of the UK Listing Authority and their admission to trading on the London Stock Exchange, the issuers are subject to the UK Listing Rules, Prospectus Rules and Disclosure and Transparency Rules of the UK Financial Services Authority as well as the Admission Standards of the London Stock Exchange. 25. Can I take physical delivery of the metal backing physical metals products upon redemption? All physical metals products can be redeemed by delivery of the underlying metal - in the form of bullion in the case of the precious metals products and in the form of LME Warrants in the case of the industrial metals products . The rights to physical redemption belong to both Investors and Authorised Participants for ETCs issued by Gold Bullion Securities Limited and just to Authorised Participant for ETCs issued by ETFS Metal Securities Limited and ETFS Industrial Metal Securities. Please refer to the relevant prospectus for more information. 26. 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. 27. Who audits the metal bars for physically-backed precious metal ETCs? The metal bar audit is done twice a year by Inspectorate International, the world leader in commodity inspection and testing. Inspectorate International is a global company providing inspection, testing, and analysis of commodities worldwide, such as metals and minerals. For more information visit: www.inspectorate.com To view the latest audited bar count for physically backed products, please click here. 28. What is the difference between ETFS Physical Gold and Gold Bullion Securities? The structures are very similar, track the spot price of Gold less management fees and both trade just like a stock on exchange. Gold Bullion Securities (LSE ticker: GBS) was the first physically backed Gold ETC in the world, listed in 2003. ETFS Physical Gold (LSE ticker: PHAU) was created in 2007 because ETF Securities recognised the need for an ISA eligible physically-backed Gold ETC. There is also a slight difference in management fee; GBS has a 0.40% per annum MER and PHAU has a 0.39% p.a. MER. Therefore, they are very similar products apart from the ISA eligibility which is relevant only for UK investors. 29. Do your Exchange Traded Commodities, Exchange Traded Currencies, Exchange Traded Funds have distributor or reporting status? ETF Securities has applied for and has achieved ‘distributor’ or ‘reporting’ status for all its products listed prior to June 2010. This protects the tax treatment of ETF Securities’ products as capital gains eligible at rates of 18% or 28%. For ETF Securities’ products listed since June 2010, application for Reporting Fund status has either been submitted, or will be submitted within 3 months of their initial listing and, based on its experience, ETF Securities fully expects to receive Reporting Fund status for those products as well. For all products to be listed in the future, we intend to apply for Reporting Fund status within this 3 months timeframe. Click here for full list.  FAQs for Oil ETCs
1. I have recently purchased ETFS Crude Oil or ETFS Short/Leveraged Crude Oil and have noticed that it does not always track the oil price. Why? ETFS Crude Oil (CRUD) is designed to track the DJ-UBS Crude Oil Sub-IndexSM which is priced off oil futures. Investing in oil futures is not the same as investing in the oil "spot" price. The figure below shows that ETFS Crude Oil has tracked the DJ-UBS Crude Oil Sub-IndexSM exactly as it should. 
2. What is the DJ-UBS Crude Oil Sub-IndexSM? The DJ-UBS Crude Oil Sub-IndexSM tracks a rolling, fully collateralised investment in near month oil futures, which is not the same as tracking the oil "spot" price. The Dow Jones-UBS Commodity IndexesSM are priced off commodity futures contracts, and not physical oil. Commodity futures contracts normally specify a certain date for delivery of the underlying physical commodity. To avoid expiry and physical delivery of the underlying commodity referred to in the futures contract, the index methodology (available at www.djindexes.com) therefore specifies that as each futures contract approaches expiration, they are sold and replaced by similar contracts with later expirations. This process is called "rolling" and is currently the main source of any performance differential between the DJ-UBS Crude Oil Sub-IndexSM and the WTI spot oil price. 3. Why can’t you just track the oil price? Tracking the oil "spot" price (meaning the prices quoted for immediate payment and delivery of particular physical commodity) implies physical ownership of the commodities and a number of associated costs such as delivery, storage and insurance. The oil "spot" price which you see on Bloomberg or quoted in the news is by definition not an investable return. As a result, investors throughout the world, and also ETCs, use liquid and standardized futures contracts to get exposure to the oil market. Standardised futures contracts imply delivery costs of pre-specified deliverable grades, at a particular location. 4. What is the DJ-UBS Crude Oil Sub-IndexSM? The correlation between the DJ-UBS Crude Oil Sub-IndexSM and the oil "spot" price has historically been very strong (average 0.99) as shown by the chart below. 
5. Can ETFS Crude Oil outperform the oil "spot" price? Yes, when the oil market is in backwardation, the roll return may be positive and therefore ETFS Crude Oil could outperform the oil "spot" price. As the chart below shows, ETFS Crude Oil outperformed the oil "spot" price during periods when the oil market is in backwardation such as the 2002-2006 period. 
6. What causes this difference in returns? ETCs issued by the ETF Securities group of companies (excluding those backed by physical bullion) are total return securities. A total return is the return that an investor can earn by holding a continuous, fully collateralised position in commodity futures. A total return consists of three sources of return: Commodity Price ("Spot") Return, Roll Return, and Collateral Return. The roll return is the return associated with selling near month futures contracts prior to expiry, and re-investing the proceeds in the "next" month futures contract; rolling keeps an investor fully invested. For any long ETC, the roll return will be positive when the futures curve is downward sloping ("backwardation") or negative when the futures curve is upward sloping ("contango"). The opposite is true for short ETCs. 7. Is there any way to avoid the (negative or positive) roll? No, rolling is an inherent feature of investing in the commodities futures market. While a financial investor cannot avoid it, there are different ways to play the shape of the futures curve. 8. Is the roll yield more frequently positive or negative? The roll return depends on the shape of the futures curve and also the maturity of the specific contract. The shape of the oil futures curve changes over time as various factors such as supply and demand, inventory levels, cost of carry, volatility and investor’s expectations about future prices evolve. 9. Why does an oil ETC return differ from the return of the front month oil future contract I see on Bloomberg/Reuters? Use of a "Generic" contract can be a source of confusion in some instances. This is because of both the fact that it does not include rolling returns and that rolling methodologies used (1st-5th Business day or 6th-10th business Day) differ from the maturities of the underlying contracts (generally around the 20th of each month). 10. How can I monitor the shape of the oil futures curve on Bloomberg? There are several functions that can be useful to monitor commodities markets: GLCO - Global commodity prices and data GCIN - Display/track global commodity indices CCRV - Analyse futures curves HS - Analyse historical Contango / Backwardation 11. How can I get exposure to more or less roll yield? Research has shown that ETCs with exposure to front month futures such as ETFS Crude Oil or ETFS Brent 1mth (OILB) tend to be more sensitive to factors affecting the short term supply / demand picture (such as economic announcements, geopolitical tensions or inventory levels). At the same time, the performance of these ETCs has been more affected by contango / backwardation than longer-dated ETCs. ETCs with exposure to longer-dated futures such as ETFS Brent 1yr (OSB1) tend to be driven more by perceptions of long term structural supply, demand and cost issues which tend to change more slowly. Back testing shows that longer dated ETCs such as OSB1 or OSB3, have been affected less by contango / backwardation, and their price has also tended to be less sensitive to short term news and events. 
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 value of your investment 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' % over the past week but my Short / Leveraged ETC has 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. However, the return may not equal -1 or 2 times the change in the Index over periods longer than one day. Please see Part 2 of the Prospectus for more information. 3. Do I have to invest more collateral (as margin) if the index moves against me? No. The securities are fully funded so that any negative price variation will not require additional margin. 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 borrowing stock and selling short into the market. The short exposure is provided in the pricing formula of the Short ETCs. FAQs for Industrial Metal ETCs
1. What is the LME? The London Metal Exchange is the world’s leading non-ferrous metals market. For more information please see http://www.lme.com/ 2. What is an LME Warrant? LME warrants are a receipt for physical metal which meets LME standards and is held in an LME approved warehouse. An LME Warrant is not a derivative. The LME warrant is a bearer certificate held by a Depository (appointed by the LME) and electronically registered in an LMEsword account. 3. What is a warehouse receipt? A warehouse receipt is a receipt for physical metal which is not the subject of an LME Warrant. Warehouse receipts are bearer certificates and are typically held in secure vaults. Any warehouse receipts of the issuer will be held in a secure vault of the Metal Agent and recorded in the name of the issuer. The issuer will only hold warehouse receipts from LME approved warehouse locations. 4. Is metal stored under an LME warrant different from metal stored in a warehouse? Yes. LME Metal, whose ownership is evidenced by an LME warrant, means that the metal meets the standards of the LME and is held at a warehouse which has been approved and audited by the LME. Metal which is not evidenced by an LME Warrant but stored in a warehouse is evidenced by warehouse receipts, does not have to (but may) meet LME standards and may not be subject to any equivalent regulation. 5. What metals can you get exposure to? The LME range of base metals, including: copper, lead, tin, zinc, aluminium and nickel. It will also possible to get an Industrial Metal Basket Security, which provides exposure to all six industrial metals. These products will be listed on the London Stock Exchange and on other relevant stock exchanges based on client demand. 6. How is the product physically backed? The Industrial Metal Securities are backed by physical metal generally evidenced by LME Warrants (or sometimes warehouse receipts). The LME Warrants and warehouse receipts are in the name of the Issuer. The metal is owned by the issuer, a standalone company which issues physically backed ETCs. 7. What quality of physical metal backs these products? The physical metal held by the Issuer will meet LME standards. This is widely acknowledged as the global benchmark for industrial metals. Please see the LME website for more information. 8. Is the metal investment grade? Yes. The Issuer will only hold physical metal which meets the LME standards. 9. Can I deliver or take physical delivery? Authorised Participants (APs) deliver (in the case of a creation) or receive (in the case of a redemption) physical metal via LME warrants. In circumstances when non-AP investors are allowed to create and redeem directly such investors pay or receive cash equivalent to the metal entitlement for that day. 10. Where do you hold your metal? The metal will be stored in LME approved warehouses around the world. The warehouses themselves are not owned directly by the LME, but they are supervised and audited by the LME. The approved warehouses are independent of the issuer. 11. How do you verify the metal is there? The LME rules only allow a Warrant to be issued once LME standard metal and the necessary documentation is in the approved warehouse itself. The LME audits the warehouses and their holdings and also hires an independent firm to conduct annual stock checks. The issuer will publish a Daily Warrant List to show the LME Warrants that it holds backing the securities. 12. Is there a custodian for the underlying metal held by IML? The underlying metal is all held in LME approved warehouses rather than with a "custodian". The LME Warrants are held by a depositary appointed by the LME and the warehouse receipts are held in a secure vault of the Metal Agent and recorded in the name of the issuer. 13. Who is the Metal Agent and what do they do? Deutsche Bank in London will act as Metal Agent to the Issuer, and will provide certain transactional, custody and administrative services in relation to the underlying physical Metal, LME Warrants and warehouse receipts. 14. What are the costs involved in holding the product? All the costs of holding physical metal are shown through a reduction in the daily metal entitlement (i.e. how much metal does one security represent). The metal entitlement will reduce each day to reflect the management fee (MER), the storage fees and an insurance allowance. The storage fees will never be more than the LME published rates. 15. What is the minimum investment? 1 security. 16. How do I calculate the price of each individual security? Each individual security has an effective entitlement to physical metal, and that entitlement changes daily to reflect the accrual of the management fee, the storage fee and the annual insurance allowance. Authorised participants create and redeem Industrial Metals securities by delivering or receiving the amount of physical metal evidenced by LME Warrants. ETFS Industrial Metals securities are traded on exchange with a price that is based on the LME spot price of the physical metal multiplied by the applicable metal entitlement. 17. What is the LME cash settlement price? This is the official price for LME physical metal. It is set in the second ring session of the day at the LME. It is the official price used to settle industrial metal contracts. 18. How do I know how much metal my securities are entitled to? The amount of physical metal your securities are entitled to can be worked out by taking the metal entitlement for the metal on that day and multiplying by the number of securities you own. The metal entitlement is published daily on our website. 19. Are there any hidden costs? The daily deduction from the ME (metal entitlement) incorporates all the costs associated with holding the Industrial Metals Securities. 20. How does this product differ from competitors’? We believe these are the first products of their kind. The issuer only holds physical metal that meets standards set by the LME. 21. How does it track the spot price? The securities track the spot price by referencing the LME cash settlement price. This is the global reference price for physical metal. The metal entitlement will reduce daily to reflect the costs of holding and insuring physical metal in an LME approved warehouse. 22. Is the metal insured? Yes. The LME warehouses are required by the LME to maintain a minimum level of insurance covering a range of risks. The issuer has taken out additional insurance to cover the specific physical metal holdings of the investors. 23. How is this product regulated? The issuer, by virtue of holding its own LMEsword account is subject, in respect of its holding of LME Warrants to the rules and guidelines of the LME. The prospectus of the issuer is approved by the UK Financial Services Authority in its capacity as UK Listing Authority.
In our structure, the trustee is an independent entity whose role is to protect the investors in accordance with the trust instrument and the conditions of the securities that are set out in the prospectus. 25. What do the market makers do? The market makers make a two-way price which references the current LME Cash Settlement Price. They work in conjunction with APs, who create Securities by delivering LME Physical Metal to the Issuer. 26. Can I put this product in my SIPP/ISA/Child Trust fund/Offshore bond? We believe the products, as securities, are eligible for SIPP, ISA and CTF. For Offshore Bonds you should check with your provider. 27. Do these products have Reporting Fund Status? Yes, these products have the Reporting Fund Status. 28. Is it a UCITS III eligible investment? We believe that the securities are transferable securities and therefore UCITS III eligible investments. We hold conference calls on UCITS eligibility which discuss this in more detail. Ultimately it is/will be up to the manager of each UCITS fund to verify this themselves. 29. Can a UCITS fund manager hold this? We believe that the securities are transferable securities. Ultimately it is/will be up to the manager of each UCITS fund to verify this themselves. 30. How does it differ from your other industrial metals products? These securities are designed to provide investors with a return equivalent to movements in the spot price of the six Metals (less fees and expenses). Our products which track the DJ UBS Commodities indices are designed, instead, to provide investors with a return similar to that which could be achieved from an investment in futures contracts in the relevant metal (less fees and expenses). 31. How is my money protected? Although the securities are ‘debt securities’ and have nominal principal amounts, there is no protection provided to investors for the money they invest. Investors are fully exposed to movements in the underlying industrial metal prices. 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.
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?
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). FAQ for Currency ETCs
1. What are Exchange Traded Currencies (Currency ETCs)? Currency ETCs are simple and transparent open-ended securities that trade on regulated exchanges. They provide investors with exposure to currencies without the potential complication of trading forwards. ETFS-branded Currency ETCs are undated, limited recourse, secured debt securities. The individual Currency ETCs are designed to track a total return foreign exchange index calculated and published by Morgan Stanley & Co. Incorporated. 2. How do the Morgan Stanley Foreign Exchange (MSFXSM) Indices work? These total return indices (USD, EUR and GBP) aim to reflect the daily change in the rate of exchange between a single currency position against the base currency, plus, in the case of G-10 currencies, the overnight interest rate differential. There is also a collateral yield based on the risk free rate. Exposures offered include G-10 currency pairs and two Emerging Market currencies – the Chinese Yuan (CNY) and Indian Rupee (INR) – versus the USD. 3. Could you explain how the triple long and triple short versions of the MSFXSM Indices work? These indices provide a leveraged exposure representing three times:
4. Returns on the MSFXSM Indices are path dependent, what does this mean? The MSFXSM Indices rebalance daily, meaning that returns over periods longer than one day are path dependent. The triple leveraged currency ETCs therefore have the scope to deliver compound returns in trending markets and will likely ‘underperform’ in volatile, directionless markets. It is important that investors understand this feature of the returns, the details of which are further set out in the prospectus of ETFS Foreign Exchange Limited. Note that whatever the market conditions, the triple leveraged Currency ETC will track the relevant triple long or triple short version of the MSFXSMIndex less fees and adjustments. 5. How are Currency ETCs priced and where is the information published? They are priced directly off the underlying MSFXSM Indices. Detailed pricing is available for all securities on the ETF Securities website. The pricing formulae are contained in the ETFS Foreign Exchange Limited prospectus 6. Who calculates the underlying MSFXSM Indices, and where is the information published? The MSFX 7. Why are there different index base currencies? There are three base currencies: the US dollar (USD), the euro (EUR) and sterling (GBP). Investors using Currency ETCs would typically take positions using their base currency, i.e. a euro-based investor would look at the EUR indices. The convention followed by the Currency ETCs is for the base currency to be the second named currency in any pair. The following are some illustrations of how investors would express views:
Please note that a sterling investor buying ETFS Long GBP Short USD, ie a US dollar index, would have no currency exposure and the same would be true for a Euro investor holding ETFS Long EUR Short USD. Both positions would yield a return based on the interest rate differential and collateral yield. 8 How does the tracking error remain minimal? The ETFS Foreign Exchange Limited prospectus contains the pricing formula applied to individual Currency ETCs each day to calculate the net asset value. An investor in a Currency ETC therefore can work out what tracking error to expect over the course of a year. 9. Who is the issuer? The issuer is a special purpose vehicles (SPV) created to issue ETCs: ETFS Foreign Exchange Limited. The assets of the issuer and each class of security are ring-fenced for investor protection. The Currency ETCs are administered by ETFS Management Company (Jersey) Limited part of the ETF Securities Group. 10. How is liquidity provided? Liquidity is derived from the underlying foreign exchange market and will reflect that of the underlying currency pairs. Currency ETCs are open-ended, therefore new Currency ETCs can be created by authorised participants according to demand. Morgan Stanley & Co. International plc, the counterparty, provides a minimum level of daily liquidity on each currency pair that can accommodate institutional flows. These levels are published in the ETFS Foreign Exchange Limited prospectus. 11. What would happen if ETF Securities were to go bankrupt? In the event that ETF Securities were to go bankrupt, there should be no impact on the assets of the Issuer as these are ring-fenced from the assets of ETF Securities and are held by the Issuer for the benefit of security holders. 12. What is the credit risk of the Currency ETCs? ETFS Foreign Exchange Securities Limited has been set up as a special purpose vehicle to issue Currency ETCs. The exposure to the underlying currency indices is provided by a counterparty: Morgan Stanley & Co. International plc. Counterparty risk is minimised by form of daily mark to market payments, and cash is used to enter repo transactions with Morgan Stanley & Co. International plc in exchange for eligible collateral. The eligible collateral is held by the collateral manager Bank of New York Mellon in a custody account and valued daily. The value of the collateral is marked to market daily to reflect the value of Morgan Stanley’s obligations to the issuer. The collateral is held in the name of the issuer. Click here to view the counterparty risk factsheet for Currency ETCs. 13. What is the difference between Currency ETCs and CFDs, certificates and warrants? The collateralised structure of Currency ETCs has been covered above. Once listed on the stock exchange, the Currency ETCs are supported by multiple, independent market makers who compete for business. Certificates or warrants are notes created, priced and traded by a single issuing bank - there are no creations/redemptions on demand and they are generally less liquid. Similar considerations apply to CFDs, which will be offered and priced by a single house. CFDs, certificates and warrants will generally involve uncollateralised counterparty exposure and may, in the case of CFDs, involve the scope for contingent liabilities. 14. Why would one use Currency ETCs rather than forwards? Forwards may involve uncollateralised counterparty risk, whereas Currency ETCs are collateralised. Currency ETCs, which trade and settle like equities, provide operational simplicity. In contrast, forwards require administrative and legal work (negotiation of contracts) and operational resources (rolling and managing positions, monitoring risks), which may prove cumbersome and costly. Furthermore, certain client mandates may only permit the use of forwards for hedging purposes. 15. Could it make sense to transact in the spot market and open a cash account? This may make sense in certain circumstances but there may be a lack of transparency on the exchange rates. In addition, there will be currencies for which it may be difficult to access money market funds or interest rates, e.g. opening an Australian dollar bank account or accessing a Japanese money market fund. 16 Can investors in Currency ETCs lose money? The price of Currency ETCs can go up or down, however investors cannot lose more than the amount of the initial investment. 17. Who regulates ETF Securities and Currency ETCs ETF Securities and its issuing subsidiaries are all incorporated in Jersey and are regulated by the Jersey Financial Services Commission (JFSC) and all require licences issued by the JFSC to conduct business. The Currency ETCs themselves are issued pursuant to a prospectus approved by the UK Listing Authority (part of the Financial Services Authority), which acts as the home regulator. 18. Are ETCs eligible investments for ISAs or SIPPs? All ETFS-branded Currency ETCs are eligible investments for ISAs and SIPPs. 19. Do Currency ETCs have reporting status? ETFS Foreign Exchange Limited has achieved Reporting Fund status for the Currency ETCs listed prior to June 2010. This protects the tax treatment of ETF Securities’ products as capital gains. An application for Reporting Fund status has been submitted for Currency ETCs listed since June 2010. For any future listings of Currency ETCs, it is intended to apply for Reporting Fund status within the relevant timeframe. Click here for full list. 20. Are Currency ETCs covered by the FSA compensation scheme? Currency ETCs are not a fund structure and ETFS Foreign Exchange Limited is a Jersey incorporated company and are not part of the FSA compensation scheme. 21. How do I buy and sell a Currency ETC? Investors can buy and sell Currency ETCs throughout the trading day on regulated stock exchanges through ordinary brokerage accounts. Currency ETCs are not subject to Stamp Duty or Stamp Duty Reserve Tax. FAQ for Physically Backed Precious Metals
1. What does it mean that a precious metal ETC is "physically-backed"? For precious metal ETCs, "physically-backed" means that the ETCs are backed by physical allocated bullion held by the Custodian (HSBC Bank USA N.A. or JP Morgan Chase Bank N.A.). The Bullion is held by the Custodian in an allocated account for the Issuer of the ETC and conforms to the rules of Good Delivery for either the London Bullion Market Association (for gold and silver) or the London Platinum and Palladium Market (for platinum and Palladium). 2. What are the London Bullion Market Association (the "LBMA") and the London Platinum and Palladium Market (the "LPPM")? The LBMA and LPPM are two trade associations that coordinate wholesale trading for gold and silver (the LBMA) and platinum and palladium (the LPPM). They maintain and publish so-called Good Delivery lists that establish a set of criteria that a refiner and its bullion must satisfy before being accepted for trading. For example, for gold and silver, the refiner must (i) have an established track record of at least three years of producing refined metal, (ii) produce a minimum of 10 tonnes of gold and 30 tonnes of silver, (iii) have a tangible net worth of at least £10mm and (iv) furnish evidence of ownership structure and directors. The bullion must be (i) in bar form, (ii) be of a minimum fineness of either 99.9% (silver) or 99.5% (gold), (iii) between 750oz to 1100oz (silver) or 350oz to 430oz (gold) and (iv) measured in troy oz (silver) or fine troy oz (gold). For additional information, please see http://www.lbma.org.uk and http://www.lppm.org.uk. ETF Securities’ physically-backed precious metals ETCs are only backed by Good Delivery bars. A detailed bar list for the Bullion can be found at www.etfsecurities.com. 3. What does it mean to hold bullion in an allocated account? Does it entail any credit risk to the Custodian? Who holds the metal? An allocated account is an account held with a custodian in a customer’s name; the account evidences that uniquely identifiable bars of bullion have been "allocated" to the customer and are segregated from other metal held in the Custodian’s vault. The customer has full title to the Bullion held in the allocated account. As a result, the allocated account does not entail any credit risk to the Custodian. 4. How does the Custodian identify the bullion held in the allocated account? Bullion may be identified by the Custodian based on one or a combination of any of the following criteria: (i) the name of the refiner; (ii) the serial number; (iii) its year of manufacture, (iv) its weight and (v) its assay. It is important to recognize that any combination of these criteria may be used to identify an individual bar of bullion. Two entirely different bars may be from the same refiner and have the same serial number but have a different weight and/or be from a different year. 5. Why would two different bars have the same serial number? Because refiners and custodians may rely on any combination of the four criteria to identify bars, they can use the same serial number for different bars, as shown in the two examples below: 1) For example, a Johnson Matthey London Good Delivery gold bar could have the following classification:
CT 12345 for a bar produced in 2000 2003 12345 for a bar produced in 2003 The above example bars may also have a different weight (which would further differentiate them). 6. How does ETF Securities audit the Bullion held in the Allocated Accounts? The Bullion held by ETFS Metal Securities Limited and Gold Bullion Securities is audited biannually by the independent metal assayer, Inspectorate International. For example, for silver, Inspectorate International undertakes the following as part of the audit:
ETF Securities audits the bullion at year end and at least once during the year, using independent metal assayer International Inspectorate as our agent. Further, ETF Securities receives a bar list, with detail on (i) weight, (ii) bar number and (iii) bar manufacturer. This information for ETFS Metal Securities Limited and Gold Bullion Securities is published daily on our website. For details of these reports please go to www.etfsecurities.com ETF Securities maintains a very good relationship with the Custodian. In the event there are any questions regarding the Bullion, ETF Securities is able to engage the Custodian directly to investigate and undertake the appropriate due diligence. Furthermore, Graham Tuckwell, Chairman and Chief Executive of ETF Securities, and Mark Weeks, Managing Director of ETF Securities (UK) Limited, have personally visited the vault. |
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