FAQs
A brief introduction to Exchange Traded Commodities
Exchange Traded Commodities (ETCs) provide investors with an efficient method of gaining exposure to changes in the price of commodities without ever having to take physical delivery of them. Historically, investors have either had to trade the physical underlying commodities or rely on alternatives such as futures contracts. Futures contracts set out the terms of purchase or sale at an agreed price for delivery at a specified date in the future. They are liquid, standardised contracts that trade on regulated exchanges and have transparent pricing. ETCs are transparent, open-ended securities that trade on regulated stock exchanges. The management of WisdomTree - today one of the world's leading providers of exchange-traded investment products and a pioneer in ETCs - listed the world's first physically-backed gold ETC in 2003.
ETCs can be bought or sold on regulated stock exchanges throughout the trading day and can be traded in much the same way as ordinary shares.
Physically-backed ETCs are designed to track the spot price (i.e. the current price of a commodity at any given time) of an underlying commodity. This type of structure is typically associated with precious and industrial metals, since these types of commodities are non-perishable, homogenous and relatively simple and cost-effective to store.
Other ETCs are priced off futures contracts or indices which track futures contracts, because for certain commodities it is not possible to store the physical underlying for long periods. Futures pricing can be more liquid and efficient for some commodities, especially where the futures contract helps to standardise pricing. Agricultural commodities are a good example, where quality can vary between crops, seasons and regions.
WisdomTree's physically-backed ETCs are structured as special purpose vehicles (SPVs). The sole purpose of the SPVs is to issue debt securities backed by allocated, investment grade metals.
The LBMA and LPPM are two trade associations that coordinate wholesale trading for gold and silver, and platinum and palladium, respectively. They maintain and publish 'Good Delivery' lists that establish a set of criteria that a refiner and its bullion must satisfy before being accepted for trading. For additional information, please see www.lbma.org.uk and www.lppm.org.uk.
WisdomTree's physically-backed precious metal ETCs are only backed by Good Delivery bars.
WisdomTree audits the bullion at year end and at least once during the year, using independent metal assayer International Inspectorate as an agent.
WisdomTree also receives a bar list, with detail on (i) weight, (ii) bar number and (iii) bar manufacturer.
WisdomTree maintains a good relationship with the custodian. In the event there are any questions regarding the bullion, WisdomTree is able to engage the custodian directly to investigate and undertake the appropriate due diligence. Furthermore, Graham Tuckwell, Chairman and Chief Executive of ETF Securities, and Mark Weeks, Managing Director of ETF Securities (UK) Limited, have personally visited the vault.