In August, India’s Securities and Exchange Board (Sebi) released operational norms for silver exchange-traded funds (ETFs), making it easier for investors to buy commodity exposure transparently.
The Financial Conduct Authority (FCA) has established standards for silver ETFs’ investment goals, valuations, net asset value (NAV), tracking error, and difference.
Silver ETFs’ investment in ETCDs with silver as the underlying would be subject to certain limitations. The maximum amount of silver that investors may buy under this rule is 10% of the net asset value.
However, this restriction does not apply to silver ETFs since the goal is not to roll over their position to the next contract cycle but rather to receive physical silver.
At least once a year, the board of asset management firms (AMC) and trustees will evaluate the policy.
The total gross exposure of silver ETFs will not exceed 100% of the net assets of the program. The physical silver will be of standard 30 kg bars with a purity of 99.9 per cent and conforming to the London Bullion Market Association (LBMA) Good Delivery Standard, according to Sebi.
The NAV of silver ETFs will be published on AMC’s website every day. The indicative NAVs will be published on stock exchange sites where ETF units are traded continuously during trading hours.
How Does It Work?
The ETFs will be listed on a well-known stock exchange, and the AMC will engage authorised participants (APs) or Market Makers (MMs) to provide liquidity for such units in the secondary market on an ongoing basis.
In an emergency, the tracking error is more than 2%, which requires the board’s and trustees’ authorisation.
At the end of each year, the board of the asset management firm (AMC) and trustees will evaluate the policy.
Because the total gross exposure of all silver ETFs will never exceed 100 per cent of the scheme’s net assets, leveraged silver ETFs will not be overleveraged. According to Sebi, the physical silver will be in the form of standard 30 kg bars with a purity of 99.9 percent and complying with the LBMA Good Delivery Standard.
“We’re glad investors will be able to gain access to silver more transparently through Silver-ETF, and it’s even better that they’ll have the option of combining silver with gold.”, Hemen Bhatia said.
On AMC’s website, the NAV of silver ETFs will be updated daily. Indicative NAVs will be made available on stock exchange platforms where these ETFs are listed during trading hours.
In terms of silver ETF scheme standards, Sebi mentioned that the price of silver would be used to benchmark such a scheme against LBMA Silver daily spot-fixing.
The silver ETFs will be traded on a well-known stock exchange, and the AMC will select authorised participants (APs) or Market Makers (MMs) to provide liquidity for such units in the secondary market on an ongoing basis.
The regulator stated that the tracking error, the annualised standard deviation of daily returns between physical silver and the NAV of a silver ETF based on one-year rolling over data, will not exceed 2% concerning tracking error.
Every month, the AMC will publish an update on its website regarding this.
In the case of unavoidable circumstances, if the tracking error is more than 2%, the AMC board and trustees must be notified, and the mistake will be made known on the AMC’s website.
In Conclusion
On the AMC’s website, silver ETFs will disclose tracking error and the tracking difference-the difference in returns between physical silver and the ETF-on a monthly basis for tenures one year, three years, five years, ten years, and since the date of allotment of units.
The SID of silver ETFs will disclose market risk associated with changes in silver prices volatility, liquidity risks in physical or derivative markets that might hinder the fund’s ability to buy and sell silver, and other risks associated with handling, storing, and safekeeping of real metal.
A specialist fund manager with commodity derivatives market expertise will be assigned to manage the fund for commodity-based funds such as gold ETFs, silver ETFs, and other funds participating in the commodities market.
