ETF Securities Amends U.S. Filing for Gold ETF

As reported first on Bullion Desk, London-based commodities specialist ETF Securities has amended its filing with the Securities and Exchange Commission in order to launch a physically-backed gold tracker product with custody in Switzerland.

Earlier this year, as reported on IndexUniverse.com, ETF Securities made filings to the SEC to launch ETFs tracking gold, silver, platinum and palladium, called the ETFS Gold, Silver, Platinum and Palladium Trusts, respectively. The platinum and palladium funds will be the first of their type available in the US market.

On 2 July the ETFS Gold Trust filed with the SEC to issue up to US$1 billion in ETFS Physical Swiss Gold Shares. The custodian will be JP Morgan Chase Bank NA (JPM), who will, in turn, select a sub-custodian in Zurich to hold the trust’s allocated gold.

The existing physically-backed gold trackers run by ETF Securities in Europe, Gold Bullion Securities [LSE: GBS.L] and ETFS Physical Gold [LSE: PHAU.L], both have HSBC Bank USA (HBC) as their custodian. HSBC was named as the custodian in the original US registration for the ETFS Gold Trust.

In recent months gold ETFs run by Swiss banks ZKB and Julius Baer have gained market share amongst bullion trackers, with many observers citing the location of the funds’ gold custody in Switzerland as a key selling point.

The ETFS Physical Swiss Gold shares will trade on NYSE ARCA under the symbol “SGOL”. The management fees to be levied on the shares have not yet been determined, a spokesman for ETF Securities said.

ETF Securities’ new filing comes at a time of intensifying competition in the gold tracker market. Last week Source, the London-based issuer of exchange-traded products, launched the Source Physical Gold ETC, whose management charge, at 0.29% per annum, undercuts competing products by at least 10 basis points.

The US-based SPDR Gold Trust (NYSEArca: GLD) remains the largest gold exchange-traded product in the world by some margin, with over US$33 billion under management.

Original post

Comments

[KAIMU BIZ:]

ALOHA !!

I have to ask why ETF Securities had to change custodian from HSBC to JP Morgan? Also why is it that this Wall Street phenomenon of "custodians" hiring "sub-custodians" and "sub-sub-custodians" exists? If there truly is actual gold bars that require storage then it seems only logical that as the manager of the ETF I would deal direct with whoever owns and insures the actual vault, maybe its VIA MAT. VIA MAT has services where they transport, store and insure gold bullion in their Swiss vaults. Why not name VIA MAT as the "custodian"? What more do you need? Why is the custodian always a bank? Why not cut out the "middleman" JP Morgan or HSBC. What real purpose do they serve shareholders? In terms of purchasing bullion, its not like there are huge numbers of suppliers out there. The few that come to mind are the COMEX, LME, the refiners like Johnson Matthey and even some of the mints like Perth Mint. As an "individual" I can buy from any of those sources. If I have $50MIL USD any of those sources will sell to me. I do not have to be an HSBC or JP Morgan to buy gold,so why so many middlemen in the mix? Seems like there could be a much more streamlined way to buy physical gold or silver bullion via an ETF than having custodians and sub-custodians in the loop. In actuality none of the custodians are adding "real" value to the ETF, but are mere "papershufflers" receiving fees for shuffling papers. I seriously doubt that JP Morgan is handling any gold bars or using its fleet to transport gold or its vault for storage, or even insuring the gold, as usually Lloyds of London does that. The fact that such a bank like JP Morgan has been the source of fraud in the past is no consolation either. Given the extremely close relationship that JP Morgan has with the US FED, acting as its agent, is of no consolation either. What sort of "resume" would JP Morgan have to submit to ETF Securities to qualify as a "custodian" ... any? Can I apply to be a "custodian" or "sub-custodian", because I can shuffle paper as good as JP Morgan can?

I just find it very strange that as a private individual with no affiliation whatsoever with huge banks I can achieve the same results as one of these ETFs without a single "custodian" or "sub-custodian" or "managers" in the loop skimming fee profits for performing no real services. If, in fact they perform no real service, then I would term them "liabilities" ...

It seems the recent and distant past history of these sorts of enterprises where Wall Street banks are involved always end in disaster for those who hold the paper shares. In fact if it were not for us "US TAXPAYERS" back-stopping all the major US Banks then none of these ETFs or the banks backing them would be solvent today. So where would these banks and markets be without FDIC and SIPC guarantees? Given the massive liabilities these "guarantees" face today it seems like some humongous leverage is being utilized and that has never ended well in the past either.

What do the shareholders say about this aspect of the ETF biz?

Jul 12 11:54 AM

[Alan Young:]

Kaimu: good comment. I can see one use for sub-custodians. (Note: the following is just my conjecture; I'll welcome any better-informed corrections).
ETFs are open-ended, so when large amounts of the ETF are traded, the corresponding amount of bullion should be moved in or out of the fund. Someone has to take custody of the bullion, and provide liquidity--which means someone with a lot of assets. In the case of GLD, for example, $32 Billion... who could manage that alone? if 10% of the ETF holders decided to sell in one week (entirely plausible), the fund has to reduce its holdings to continue tracking the spot price; someone has to be ready to buy. A custodian or sub-custodian would have traders to deal with that, while a stand-alone sponsor (or you) might not be able to move enough trades quickly enough.

That said, yes, it's wise to question business arrangements that seem overly complex and add too much opacity. But sometimes, perhaps, you have to choose between transparency and liquidity.

Jul 12 05:09 PM

[whidbey:]

The rush to play in PMs is just for the bucks and holding costs of course (pure rents, we know). We also know that there is almost no chance that inflation will not bloom one night when the moment of truth comes to public : "yes the bastards are doing it, by god, they plan to ruin us all."

There will be opportunity for all the skimmers, sub managers and towel handlers in the men's room to peddle PMs. Of course since the early fifties they have been sticking it to us and whittled the dollar down to 5% on the dollar. May they strangle on their cheap cigars and watered brandy. We want a currency with metal behind it, precious metals at that.

Jul 12 08:29 PM

[Bron Suchecki:]

KAIMU BIZ: interesting comments. There is a stock exchange gold "fund" that does what you say - ASX:ZAUWBA (known as Perth Mint Gold). Perth Mint is the issuer and custodian, which has a lot to do with why the management fee is only 0.15% compared to most of the others at 0.40%.

However, Alan Young is right about the liquidity issue, hence there is a limit of 100t on ZAUWBA. One point I would take with Alan is that given the size of HSBC or JP Morgan they would not need sub-custodians for liquidity, they are big enough.

Jul 12 10:51 PM

[goldrealmny:]

Yet another way for the banksters to trick people into giving them paper money in exchange for a piece of paper. Screw them.

Jul 12 11:53 PM