ETF Securities has filed paperwork with the SEC for a “ETFS Physical Lead ETF.” Lead is soft, ductile, and highly resistant to corrosion. It has been used for more than 7,000 years and is easy to extract, usually being found in ore with zinc, silver, and copper. Lead’s high corrosion resistance makes it ideal for buildings; the high density makes it an effective barrier to radiation in hospitals and helps reduce noise in factories as well as in ships. More than 50 percent of lead’s end use is for lead-acid batteries to provide power in vehicles and emergency power. At least three-quarters of all lead used goes into products which are suitable for recycling and the recovery of lead from scrap requires much less energy than extracting from ore, which is why lead has the highest recycling rate of all the common non-ferrous metals. Over 50 percent of lead consumed is derived from recycled or re-used material.
The investment objective of each Fund is for the Fund’s Shares to reflect the performance of the price of the physical Metal represented by the Fund, less expenses and liabilities. The Shares are intended to mirror as closely as possible the performance of the price of a particular physical Metal, and the value of a Fund’s Shares relates directly to the value of the Metal held by that Fund less the Fund’s liabilities (including estimated accrued but unpaid expenses). An investment in physical Metal requires expensive and sometimes complicated arrangements in connection with the assay, transportation, warehousing and insurance of the physical Metal. Although the Shares will not be the exact equivalent of an investment in physical Metal because the Warrants (and Warehouse Receipts) represent only the ownership and possession of Metal and do not reflect the expenses associated with the operation of the Fund, they provide investors with an alternative that allows a level of participation in the physical Metal market through the securities market.
Each Fund Share will be backed by physical Metal evidenced by Warrants (or in some cases Warehouse Receipts). Each Warrant specifies the location of the Metal it evidences, which can be in any one of the [___] LME Warehouses across 39 global locations. To create a Creation Unit, Authorized Participants may deliver any Warrant that is admitted for settlement in LMEsword, meets the requirements in the applicable Authorized Participant Agreement, and does not breach the Proscribed List. The Proscribed List outlines the characteristics (e.g., jurisdiction) of the types of Warrants accepted by the Trust for purposes of Creations. The Trust expects that it will receive Warrants that trade with the lowest premium in the “over the counter” market (so-called “cheapest to deliver”). Conversely, the Trust expects to deliver Warrants for redemption without regard to any potential premium attached to such Warrants.
Metal can be stored anywhere, but storage locations are determined by proximity to production, and/or transport. The majority of Metal is (and all of the Trust’s Metal will be) stored in LME Warehouses. The LME has over 500 approved warehouses in 39 locations throughout the U.S., Europe, the Middle and the Far East. Criteria for choosing locations for LME Warehouses include appropriate fiscal and regulatory systems, service by a good transport network, a tax regime that allows for storage without payment of duty and political and economic stability. Holders of Warrants must have clear title to and be able to take possession of the underlying Metal in the event of the insolvency of the LME Warehouse. Taxation on the storage and transfer of Metal is an important criteria in determining the location of LME Warehouses and to that end, the LME conducts due diligence to ensure that jurisdictions in which LME Warehouses are located allow for the storage of Metal indefinitely in a secure customs warehousing regime without liability for any duties prior to customs clearance (including any domestically produced Metal or any Metal that has previously cleared customs), do not impose any tax liability on transactions for Metal held in LME Warehouses, do not require the determination of ownership of the Metal being stored and do not impose any taxes on storage costs. Each LME Warehouse must enter into a Warehouse Agreement with the LME that requires the LME Warehouses to maintain minimum levels of insurance and appropriate security. Each LME Warehouse is subject to at least one independent audit a year relating to its stock and its storage facilities.
LME Warehouses may only store On Warrant Metal in areas that comply with LME Rules and are subject to LME supervision; such areas may also contain Off Warrant Metal. Off Warrant Metal may also be held in areas that are not subject to the LME rules or supervision.
Each Fund’s ordinary recurring expenses will be composed of the Sponsor’s Fee, Storage Fee, and Insurance Allowance. Please see “Description of the Shares” for further details on how such fees are calculated and deducted from the Metal Entitlement of each Creation Unit and paid to the LME Warehouses and the Insurance Underwriters, respectively.
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