PROPOSAL BY ETF SECURITIES TO USE ETCS TO … Securities public.pdf · PROPOSAL BY ETF SECURITIES TO USE ETCS TO PRICE SPOT SILVER ... iShares SSLN * 2011 16 ... • Backed by allocated

PROPOSAL BY ETF SECURITIES

TO USE ETCS TO PRICE SPOT SILVER

20 JUNE 2014

CONTENTS

• Exchange Traded Commodities and ETF Securities Limited

• Trading of Silver on the LSE (PHAG)

• The Three Uses of PHAG – Investment, Pricing and Delivery

• Benchmark Administration

June 14

EXCHANGE TRADED COMMODITIES AND

ETF SECURITIES LIMITED

INVESTMENTS MAY GO UP OR DOWN IN VALUE AND YOU MAY LOSE SOME OR ALL OF THE AMOUNT INVESTEDP 3

DEVELOPMENT OF PRECIOUS METAL EXCHANGE TRADED PRODUCTS


GOLD

launched

GBS

launched

SLV

launched

Globally,

more than

35 listed

PM ETPs

2014

20032003

2006

2004

GLD

launched

2007

PHAG

listed

GLOBAL PRECIOUS METAL ASSETS UNDER MANAGEMENT


ETF SECURITIES PRECIOUS METAL ASSETS UNDER MANAGEMENT


ETF SECURITIES PRECIOUS METAL ASSETS UNDER MANAGEMENT


EUROPEAN LISTED SILVER EXCHANGE TRADED PRODUCTS


Sponsor Code Listed AUM (m) % of Total

AUM

ETFS PHAG 2007 730 89%

Deutsche XSIL 2010 68 8%

iShares SSLN * 2011 16 2%

Source SSLV 2011 6 1%

Total Silver AUM 820 100%

TRADING OF SILVER ON THE LSE (PHAG)


KEY FEATURES OF PHAG

• Listed on stock exchanges; trades & settles like shares

• Tracks the price of physical silver

• Open-ended with creation and redemption using physical delivery of silver

• Backed by allocated silver meeting LBMA good delivery standards

• No stamp duty

• ETCs settle in CREST while the underlying metal clears through normal LBMA channels


HOW PHAG IS VALUED


• PHAG effectively is exchange traded silver

• The metal entitlement declines daily at a

rate of 0.49% pa

• At any point in time, the value of PHAG is

the metal entitlement multiplied by the spot

price

PHAG=

Metal

Entitlement xSilver

Spot Price

= x$18.87549 0.965498215 oz $19.55

PHAG TRACKS THE SPOT PRICE


16-May-14 Inter-bank LSE Comex

at 15:00 OTC spot PHAG Futures

Bid 19.330 18.660 19.340

Ask 19.350 18.689 19.350

Mid 19.340 18.675 19.345

Metal oz 1.0000 0.9662 1.0000

Price 1oz 19.34 19.33 19.35

Price 1oz at:

14:45 19.34 19.33 19.35

14:50 19.32 19.31 19.31

14:55 19.73 19.72 19.74

15:00 19.76 19.75 19.77

15:05 19.75 19.74 19.76

15:10 19.71 19.70 19.72

15:15 19.66 19.65 19.67

• The price of the precious metal ETCs moves in lock step with the OTC market and the futures

market so that pricing in any one of those markets constantly reflects pricing in the other.



• The average mid price of PHAG also reflects the Fixing

Fix PHAG Spot (XAG) FuturesPeriod Date Fix ($) Ave. Mid ($) Ave. Mid ($) Ave. Mid ($)

18/11/2013 20.64 20.63 20.63 20.66

19/11/2013 20.44 20.43 20.43 20.45

20/11/2013 20.24 20.26 20.26 20.28

21/11/2013 19.97 19.99 19.98 20.01

22/11/2013 19.93 19.92 19.93 19.94

16/12/2013 19.50 19.50 19.50 19.48

17/12/2013 20.02 20.02 20.01 19.99

18/12/2013 19.94 19.96 19.96 19.94

19/12/2013 19.34 19.35 19.36 19.34

20/12/2013 19.33 19.33 19.34 19.31

20/01/2014 20.29 20.31 20.30 20.30

21/01/2014 20.03 20.01 20.01 20.00

22/01/2014 19.87 19.88 19.87 19.86

23/01/2014 20.11 20.13 20.12 20.11

24/01/2014 20.19 20.21 20.21 20.20

1

2

3

• Source: ETF Securities, Bloomberg



• PHAG prices can be seen on a minute by minute basis during the time period for the Fixing

Silver

Fixing

Time Bid ($) Ask ($) Bid ($) Ask ($) Bid ($) Ask ($) Fix ($) Mid ($)

Six-

minute

mid Ave.

($) Mid ($)

Six-

minute

mid Ave.

($) Mid ($)

Six-

minute

mid Ave.

($)

18/11/2013 12:00 20.60 20.65 20.61 20.64 20.64 20.65 20.64 20.63 20.63 20.62 20.63 20.65 20.66

18/11/2013 12:01 20.61 20.66 20.62 20.65 20.66 20.67 20.64 20.64 20.63 20.66

18/11/2013 12:02 20.62 20.65 20.63 20.66 20.66 20.68 20.64 20.64 20.64 20.67

18/11/2013 12:03 20.61 20.65 20.61 20.64 20.65 20.66 20.64 20.63 20.63 20.65

18/11/2013 12:04 20.61 20.65 20.62 20.64 20.65 20.66 20.64 20.63 20.63 20.66

18/11/2013 12:05 20.61 20.66 20.62 20.65 20.66 20.67 20.64 20.64 20.64 20.66

18/11/2013 12:06 20.61 20.66 20.63 20.65 20.66 20.67 20.64 20.64 20.64 20.66

PHAG Spot (XAG) FuturesSpot (XAG) FuturesPHAG

THE THREE USES OF PHAG:

- INVESTMENT

- PRICE DISCOVERY

- SETTLEMENT


THE THREE ROLES

• PHAG is currently used by a wide variety of investors and financial intermediaries to invest in

and trade physical silver

• PHAG can also fulfil the role of daily pricing:

• Can provide accurate, transparent and efficient price discovery via the auction process

• Transactions trade and settle at the auction price via the creation and redemption

process

• Both producers and consumers can enter sell orders via financial intermediaries or through

direct market access

• Supply and demand will be reflected in auction process and executable orders will be filled

• Settlement of cash and metal will pass through the PHAG creation and redemption process to

occur on T + 2 timing


PRICE DISCOVERY = THE AUCTION PROCESS

• Many stock exchanges use an auction process to determine accurate closing prices

• Process can be applied to fixing a price for silver

• Occurs during a 5-minute window, concentrating liquidity and order flow to assist price discovery

• Consists of a call phase, which allows for price discovery without actual trades, and then a price

determination phase, during which trades are executed

• Final prices are determined based on matching algorithms that execute trades at the price levels

that maximise volume

• Auction process is protected by market order and price monitoring extensions


PHYSICAL DELIVERY AT AN EXECUTABLE PRICE

Example of a Producer selling silver (at the auction price)

Day T

• Producer gives order to a bank

• Bank buys oz from producer and sells equivalent oz of PHAG

Day T+2

• Producer delivers metal

• Banks uses metal to create PHAG

• Banks sells PHAG and receives $

• Bank pays $ to producer


COMPARISON TO THE CURRENT FIXING

• Daily: A price determined each London business day

• Spot: Pricing based on trading spot silver on a T + 2 basis

• Loco London: Settlement based on metal traded/held loco London

• LBMA Good Delivery: Deliverable metal complying with LBMA good delivery standards

• Tradable and Deliverable: Provides a price at which market participants can trade and settle

cash and silver

• Electronic: Will be traded via electronic price setting mechanisms on regulated exchange

• Auction based: Based on auction processes from a regulated exchange

• Transparent: Auction process will allow for order, pricing and execution transparency

• Auditable: Exchange trades can be reviewed and audited

• Increased access: Market participants can trade via financial intermediaries or direct market

access to the exchange


COMPARISON TO THE CURRENT FIXING


Attribute Proposed

Auction

Existing

Fix

Daily √ √

Spot √ √

Loco London √ √

LBMA Good Delivery √ √

Tradable √ √

Deliverable √ √

Electronic √ ○

Auction based √ ○

Transparent √ ○

Auditable √ ○

Increase in participants √ ○

Ready to go √ ○

Fees √ ○

THE NECESSARY LEGAL AGREEMENTS ARE ALL IN PLACE

• Any proposal to replace the Fix will need detailed legal documentation, which will take a great

deal of time to draft, negotiate and sign amongst multiple parties

• PHAG already has all the legal documentation in place to make the auction binding and

deliverable

• Banks already signed up include: HSBC, JP Morgan, Morgan Stanley, Goldman Sachs,

Merrill Lynch, ABN Amro, Commerzbank, UniCredit Bank and Credit Suisse

• We are ready to go


OUR PROPOSAL SATISFIES BENCHMARK REQUIREMENTS

• We believe our proposal will meet key requirements of benchmark regulations

• Many of the standards set forth in the IOSCO and FCA regulations will be met by virtue of the use

of pricing established on a regulated exchange

• ETFS expects to establish appropriate committees, publish rules and methodology, create a code

of conduct for market participants, disseminate policies and procedures for review and monitoring

of the auction process and the price inputs, obtain and maintain regulatory permissions and fulfil all

other relevant obligations.

• ETFS has extensive experience with regulation and regulators in a wide variety of markets and with

that experience, it is well placed to provide required governance and transparency


CONCLUSIONS

• Spot silver has been trading in London on exchange (LSE: PHAG) for 7 years

• Trading on-exchange mirrors the OTC market and the futures

• The systems for price discovery (auctions) and physical delivery (creations/redemptions)

have been in place for years and are ready to be used immediately

• Moving the role of the Fix (daily pricing and delivery) from OTC to on-exchange will

demonstrate the highest level of transparency and governance and show leadership in the

regulatory process


IMPORTANT INFORMATION

General

This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”).

This communication is only targeted at qualified or professional investors.

The products discussed in this communication are issued by ETFS Commodity Securities Limited (“CSL”), ETFS Hedged Commodity Securities Limited (“HCSL”), ETFS Hedged Metal Securities Limited (“HMSL”), ETFS ForeignExchange Limited (“FXL”), ETFS Industrial Metal Securities Limited (“IML”), ETFS Metal Securities Limited (“MSL”), ETFS Oil Securities Limited (“OSL”), Gold Bullion Securities Limited (“GBS” and, together with CSL, HCSL,HMSL, FXL, IML, MSL and OSL, the “Issuers”) and GO UCITS ETF Solutions plc (the “Company”). Each Issuer is regulated by the Jersey Financial Services Commission. GO UCITS ETF Solutions plc is an open-endedinvestment company with variable capital having segregated liability between its sub-funds (each a “Fund”) and is organised under the laws of Ireland. The Company is regulated, and has been authorised as a UCITS by theCentral Bank of Ireland (the “Financial Regulator”) pursuant to the European Communities (Undertaking for Collective Investment in Transferable Securities) Regulations, 2003 (as amended).

Italy: When being made within Italy, this communication is for the exclusive use of the “qualified investors” and its circulation among the public is prohibited.

Switzerland: When being made within Switzerland, this communication is for the exclusive use by “Qualified Investors” (within the meaning of Article 10 of Section 3 of the Swiss Collective Investment Schemes Act (“CISA”) and itscirculation among the public is prohibited. Securities in SCSL are not shares or units in collective investment schemes within the meaning of CISA. They have not been approved by the Swiss Financial Market SupervisoryAuthority (FINMA) and are not subject to its supervision. The Swiss Franc Currency-Hedged Commodity Securities are not issued or guaranteed by a supervised financial intermediary within the meaning of CISA.

This document does not constitute a prospectus under the Companies (Jersey) Law 1991 and is not an offer or an invitation to acquire securities in SCSL. This document does not constitute a Swiss listing prospectus under theSIX Listing Rules and the SIX Additional Rules for the listing of Exchange Traded Products. This document must be read in conjunction with the Swiss Listing Prospectus. If there is any inconsistency between this document andthe Swiss Listing Prospectus, the Swiss Listing Prospectus shall prevail. Detailed information on the terms and conditions of the Swiss Franc Currency-Hedged Commodity Securities can be found in the Swiss Listing Prospectusunder Part 6 – Trust Instrument and Commodity Securities.

US: This communication is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof, wherenone of the Issuers, the Company or any securities issued by them are authorised or registered for distribution and where no prospectus for any of the Issuers or the Company has been filed with any securities commission orregulatory authority. Neither this communication nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. Neither the Issuers, the Company nor any securities issued by themhave been or will be registered under the United States Securities Act of 1933 or the Investment Company Act of 1940 or qualified under any applicable state securities statutes.

This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. ETFS UK does not warrant or guarantee the accuracy or correctness of any informationcontained herein and any opinions related to product or market activity may change. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating tosuch data.

Any historical performance included in this communication may be based on back testing. Back tested performance is purely hypothetical and is provided in this communication solely for informational purposes. Back tested datadoes not represent actual performance and should not be interpreted as an indication of actual or future performance. Historical performance is not an indication of or a guide to future performance.

The information contained in this communication is neither an offer for sale nor a solicitation of an offer to buy securities nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation,purchaser or sale would be unlawful under the securities law of such jurisdiction. This communication should not be used as the basis for any investment decision.

ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investmentservices to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you tobelieve otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.

Risk Warnings

Securities issued by the Issuers and the Company may be structured products involving a significant degree of risk and may not be suitable for all types of investor. This communication is aimed at sophisticated, professional andinstitutional investors. Any decision to invest should be based on the information contained in the prospectus (and any supplements thereto) of the relevant Issuer or the Company which includes, inter alia, information on certainrisks associated with an investment. The price of any securities may go up or down and an investor may not get back the amount invested. Securities may be priced in US Dollars, Euros, or Sterling, and the value of theinvestment in other currencies will be affected by exchange rate movements. Investments in the securities of the Issuers or the shares of the Company which provide a short and/or leveraged exposure are only suitable forsophisticated, professional and institutional investors who understand leveraged and compounded daily returns and are willing to magnify potential losses by comparison to investments which do not incorporate these strategies.Over periods of greater than one day, investments with a short and/or leveraged exposure do not necessarily provide investors with a return equivalent to a return from the unleveraged long or unleveraged short investmentsmultiplied by the relevant leverage factor.

Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuers and the Company.

The relevant prospectus for each Issuer and the Company may be obtained from www.etfsecurities.com. Please contact ETFS UK at +44 20 7448 4330 or [email protected] for more information.


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PROPOSAL BY ETF SECURITIES TO USE ETCS TO … Securities public.pdf · PROPOSAL BY ETF SECURITIES TO USE ETCS TO PRICE SPOT SILVER ... iShares SSLN * 2011 16 ... • Backed by allocated