Exchange Traded Commodities. Exchanged Traded Commodities (“ETC”s) are listed securities designed to provide investors with exposure to commodities or commodity price benchmarks. They are structured to behave like funds, but technically they are debt securities issued by Special Purpose Vehicles (“SPVs”), like an asset-backed security, as the notes are fully backed. Hence, they are especially exposed to the credit worthiness of the issuer and, if indirect replicating, the swap counterparty (ETCs are designed to minimize counterparty risk, either through the purchase of physical assets or via the posting of collateral with an independent third party). ETCs trade intraday on regulated stock exchanges. They enable investors to gain exposure to single commodities such as gold, silver and oil, without trading futures contracts or taking physical delivery of commodities. Thus, they are free from margin requirements or contingent liabilities associated with futures investing. It is important to understand that whereas ETFs are collective funds (UCITS), ETCs are not regulated like funds, e.g. they are not UCITS compliant. An UCITS ETFs cannot track single commodities or commodity baskets but an ETC enable investors to gain exposure to commodities without trading commodity futures contracts themselves or taking physical delivery of commodities. The risks associated with investing in ETC include but not limited to:- The risk of loss in trading commodities can be substantial. The price of commodities (e.g. raw industrial materials such as gold, silver and oil) may be subject to substantial fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. Additionally, valuations of commodities may be susceptible to such adverse global economic, political or regulatory developments. Investors in certain products linked to a commodity should be prepared and able to sustain losses of the capital invested, up to a total loss as detailed in the product. The value of an investment in the ETC may go down as well as up and past performance of the underlying commodity is not a reliable indicator of future performance. The holder of the ETC will be exposed to the credit risk of the Issuer. Liquidity Risk: Although the Issuer will use reasonable efforts to quote bid and offer prices (subject to internal policy and applicable laws and regulations), the liquidity of the investments may be limited. The investment does not generate a regular inc...
Exchange Traded Commodities. (ETC) risks Exchange traded commodities (ETC) are securities which enable the investors to invest in commodities. Just like ETFs, ETCs are traded at the stock exchange. Contrary to the ETF, the capital invested in an ETC is not deemed a special asset which is protected in case of the issuer’s insolvency. This is due to the fact that the ETC is a bond issued by the ETC issuer. Compared to a physically replicating ETF, the investor in an ETC thus faces an issuers risk. In order to minimize this risk, issuers use various hedging methods. In addition to the general risks inherent in the investment in securities, ETC investments are subject to additional specific risks which are outlined below. • Price risk: In general, investments in commodities are subject to the same price risks as direct investments in commodities. Extraordinary events such as natural disasters, political conflicts, government regulation or weather changes may affect the availability of the commodities and thus lead to a drastic change in the price of the underlying asset and potentially the derivative as well. This can also result in a limitation of the liquidity and declining prices. In addition, the general economic development has a major impact on the demand for certain commodities such as metal or energy sources as a production factor significant to the sector. • Counterparty risk: The trading in derivatives triggers a risk related to the structuring of the derivative contract. If the other party is not willing or able to meet its obligation under the derivative contract, it is possible that the derivative contract is not executed either in full or in part.
