More on silver ETF's
More silver vehicles; London and Dubai
By: Rhona O'Connell
Posted: '10-MAR-06 15:28' GMT © Mineweb 1997-2004
LONDON (Mineweb.com) -- While the market awaits the decision of the Securities & Exchange Commission (SEC) about the acceptability of a Silver Exchange Traded (ETF), two other developments in the silver market warrant some attention. These are the proposed launch of a silver Exchange Traded Commodity on the London Stock Exchange and the introduction of silver futures trading on the Dubai Gold & Commodities Exchange.
The London ETC is due to be launched in April by ETF Securities, run by Australian Graham Tuckwell, who was behind the Gold Bullion ETF on the Australian Stock Exchange, the first gold-backed ETF to be listed. It is not proposed, however, to back this fund with any physical metal (and so this fund is unlikely to be responsible for the borrowing in the silver market that has taken the implied 12-month lease rate to 4% in recent weeks).
This new instrument is expected to mirror the existing Gold bullion Securities and Oil Securities already listed on the London Stock exchange and which have attracted US$1 billion in assets. These are described by ETF Securities as “secure open-ended exchange-traded securities that accurately track the relevant underlying commodity price”.
The fund is expected to buy silver-backed securities from a third party rather than the physical metal and so it would differ from the gold ETFs that are physically backed by allocated metal. This means that, while it would not take silver off the market, similarly liquidity would not be as deep, pro rata, as the gold ETFs or the potential iShares silver ETF in New York since it would only reflect the amount of metal held by the counterparty.
What it would be interesting to know is the identity of the counterpart. To date this has not been made public and until more is known then the jury must remain out on the prospects for this instrument.
Meanwhile in Dubai, where gold trading has picked up to more than two tonnes of gold per day, the Dubai Gold and Commodity Exchange is to launch a silver contract. The contract size will be 1,000 ounces of silver of 99.9% fineness, deliverable at the DGCX approved vaults in the United Arab Emirates. Since the gold contract was launched on November 22ndh last year, the Exchange has traded over 30 tonnes of metal and volume is increasing steadily. The silver contract is expected in May and the Exchange is looking to develop a daily volume in the region of 20,000 contracts (equivalent to 622 tonnes) by thee end of the year. This may sound a lot, but the silver contract on COMEX has recently traded more over 100 million ounces per day. That is equivalent to more than one year’s fabrication demand and so a target of 20 million ounces in Dubai, while ambitious, is not totally unrealistic. The futures contract will be followed by options.
The Dubai Exchange has announced its good delivery standard for silver bars and so far seven international refiners have been approved for Good Delivery accreditation. These include Johnson Matthey from Salt Lake City, Matsuda Kangyo co Ltd., Sumitomo Metal Mining and Tanaka KK from Japan, with Metalor Technologies SA and PAMP SA in Switzerland and the Rand Refinery of South Africa. To qualify for listing, refineries must meet the following criteria:
A tangible net worth of not less then the equivalent of US$10 million
An annual refining production of not less than 30 tonnes of silver in the form of one kilo bars or larger
The DMCC must be satisfied that the organisation is. fit with proper systems covering administration and record keeping requirements.
The bars must be of minimum weight of one kilogramme , minimum fineness 999.0 parts per thousand, bearing the following marks: serial number; assay stamp of refiner; fineness to either three or four significant figures; date of manufacture (this is optional) and weight in either troy ounces or kilogrammes. Each applicant must also supply a letter from each of these categories: a) central banks, local regulatory authorities or well-known commercial banks that are acquainted with the refinery’s business; and b) recognised exchanges and markets on which the refinery’s bars have been traded or well-known industrial users or bullion banks that have consumed the refinery’s bars.
The Dubai authorities pride themselves on their rigorous requirements in order to provide service of the highest order; clearly the silver contract is going to be as closely monitored as is gold.
In the United States, meanwhile, the NYMEX authorities have increased the margins on the silver contract on COMEX. Clearing and non-clearing members will now have to pay a margin of $2,500 (up from $2,250), while customers; margins have been raised from $3,375 from $3,038. Whether this will dampen the market’s recent fervour is not yet clear, but after recent frenetic activity a period of calm would be merited.