Source Launches Physical Gold ETC
June 30, 2009
Source has today announced the listing of an exchange-traded commodity (ETC) backed by physical gold on the London Stock Exchange.
The listing represents Source’s first on the LSE, since all its previous launches have taken place on the Deutsche Boerse XETRA platform, and also the firm's first launch of an ETC backed by a physical commodity. The gold tracker will be known as a P-ETC, in contrast to Source’s twenty-two existing ETCs backed by government bonds, which are known as T-ETCs.
A representative of Source explained that the choice of the LSE as the listing venue was motivated by the option of using the US dollar as the ETC's trading currency, something that is not permissible on XETRA. The fact that 75% of trading in ETCs takes place on the LSE also influenced the decision, he added.
The ETC will track the daily 3pm London fixing, a benchmark reference point in the gold market.
Source’s gold P-ETC carries an annual management fee of 0.29%, which undercuts the closest comparable European physical gold trackers. ETF Securities’ Gold Bullion Securities ETC and ZKB’s Physical Gold ETF, the largest two European tracker products backed by physical gold collateral, both carry annual management charges of 0.40%, while ETF Securities’ Physical Gold ETC has a charge of 0.39% per annum. The largest US gold tracker, the SPDR gold trust, which has over $33 billion in assets, also carries a 0.40% annual charge.
Each gold P-ETC is a certificate, secured by gold bullion held in J.P. Morgan Chase bank’s London vaults. The issuer of the certificates, Source Physical Markets plc, is an Irish-domiciled company.
The gold bullion will be held in allocated gold bars, with a residual amount held in unallocated gold in a segregated account, also with JP Morgan Chase.
Gold P-ETC owners will be able to obtain details of the underlying bars held in the allocated custody account via a daily update on Source's website.
There is a provision in the prospectus for gold P-ETC owners to take physical settlement upon redemption of their certificates, subject to having an unallocated gold account at the LBMA (London Bullion Market Association).
Authorised participants for the P-ETC are the three founding shareholders of Source, Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley. Dutch firms Flow Traders and Nyenburgh have been appointed as market makers.
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