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ETS Securities says Commodity Securities ETCs backed by AIG will be collateralised


ETF Securities has announced a solution to the problems facing its ETFS Commodity Securities exchange-traded commodities, which are backed by matching contracts from AIG Financial Products

ETF Securities has announced a solution to the problems facing its ETFS Commodity Securities exchange-traded commodities, which are backed by matching contracts from AIG Financial Products that are guaranteed by troubled insurance giant American International Group.

Concern about the ability of AIG to meet the guarantees, following its effective nationalisation after it was forced to seek loans totalling USD122.8 billion from the Federal Reserve Bank of New York in order to stake off insolvency, forced the temporary suspension of trading of ETFS Commodity Securities on the London Stock Exchange last month.

AIG and ETF Securities’ Commodity Securities subsidiary have signed agreements between each other and with Bank of New York Mellon under which AIG is required to post collateral covering at least than 100 per cent of the daily mark-to-market value of all issued Commodity Securities products.

BNY Mellon, in its role as collateral manager, will hold the collateral in a separate account, into which AIG must deposit the collateral and over which Commodity Securities may take control by delivering a notice of exclusive control to BNY Mellon.

Once BNY Mellon opens accounts in the applicable local markets for receipt of initial collateral, the agreements require AIG to complete the transfer of such collateral within three business days and thereafter to transfer additional collateral if, at the time BNY Mellon performs its daily mark-to-market, the value of the collateral in the account has fallen below the value of all Commodity Securities outstanding.

The collateral will be valued each day by BNY Mellon using generally recognised pricing information vendors. The collateral may include cash, certain government debt obligations and other debt obligations rated at least AA by Standard and Poor’s or its equivalent from another recognised rating agency. The mix of collateral is subject to concentration limits.

Further information about the agreements and the collateral rules will be included in supplementary prospectuses, which ETF Securities says it hopes to lodge with the UK Listing Authority within the next few days and to publish once approved.

The firm has emphasised that AIG has continued at all times to honour all its obligations with regard to Commodity Securities, including processing all creations and redemptions in the usual manner and paying all redemptions due on time.

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