Tradeable warehouse receipts for precious metals offer more flexibility
Overview of tradeable precious metal warehouse receipts
Physical precious metals (e.g. coins or bars) can always be sold for their monetary value, though this usually requires a movement of goods. However, investors have a flexible alternative – negotiable warehouse receipts from OrSuisse – which leaves the goods in situ after the sale. They differ from other securities such as precious-metal ETFs and precious-metal accounts.
Tradeable warehouse receipts for precious metals are equivalent to securities that can be transferred as required via a simple endorsement. They are always covered by physically deposited precious metals such as gold, silver, platinum or palladium. Under the Swiss Code of Obligations, warehouse providers are entitled to issue special warehouse receipts that qualify as securities. However, in order to meet the legal requirements, these documents must have a precisely defined content. And in addition, authorisation is also required from the Executive Council for the respective Swiss Canton.
Different securities and their transferability
Classic securities are nowadays known as bearer-, order- or registered papers. While order papers show a beneficiary, bearer papers are executed without a recipient, because no name appears on the deed instrument itself. These include, for example, banknotes, cheques, shares and bonds. Whoever is in possession of these securities can claim them at any time, i.e. trade them in, sell them, or give them away. Once a bearer paper is lost, its benefits are accessible to anyone.
A registered paper contains details of a specific recipient, and thus offers greater security, because payment can only be made to that named person. These securities are not intended for circulation, and a transfer to another person is only legally possible via a complex assignment of claims (cession). By contrast, even though order papers (for example negotiable warehouse receipts) show a particular benificiary, they can still be easily transferred to a new owner.
The different securities at a glance:
- Bearer paper: The owner can fully assert the right to payment documented therein. There is no separate requirement to prove ownership.
- Registered paper: Only the registered recipient can demand payment. A transfer is only possible with restrictions and by legal assignment (cession).
- Order paper: Benefits the named recipient. This form of secure warehouse receipt can be transferred by a simple endorsement.
Right to delivery of precious metals with a negotiable (order) warehouse receipt
What is so special about negotiable warehouse receipts? Anyone who stores precious metals with OrSuisse in Switzerland will receive special warehouse receipts with a right of return covering the stored goods. According to the Swiss Code of Obligations (OR), these documents are regarded as securities and guarantee the release of the coins or bars they describe. At the same time, these documents also enable a full transfer of ownership without the need for any movement of goods. Thus, negotiable warehouse receipts can be offered to buyers all over the world. Meanwhile, the precious metals themselves can continue to be stored safely and untouched in Switzerland. These OrSuisse securities can also be used to secure loans, or can be sold directly to authorized precious metal dealers.
As a storage company, OrSuisse has been offering tradeable warehouse receipts for deposited precious metals since 2012. The original purpose was, and still remains, to increase the fungibility and liquidity of precious metals. This special storage concept enables flexible custody arrangements outside of the banking system. Discreet and secure storage of gold, silver, platinum or palladium can be undertaken, in segregated storage conditions whereby goods are stored under individual custody arrangements. This means owners will receive the precise coins or bars they originally delivered into storage. This arrangement includes comprehensive full risk insurance, and it is also possible to fix storage fees for several years in advance – which means ongoing costs can be fixed, possibly producing a considerable saving.
Bank-independent storage of gold and white metals
These goods are subject to an authenticity check when they are first stored. This procedure guarantees the origin and authenticity of all stored precious metals. Clients then receive their warehouse receipts, which carefully note the appropriate bar or seal numbers. Up to ten products comprising the same metal and in the same denomination can be listed per warehouse receipt. For example, a negotiable warehouse receipt can contain 10 one-ounce Krugerrand gold coins, or up to 10 gold bars of 100 grams each. If the quantity limit is exceeded, then additional warehouse receipts are issued as appropriate for the remaining items. Of course, individual, smaller denominations can also be arranged, e.g. three warehouse receipts with each receipt specifying 5 gold coins.
Each warehouse receipt only exists as one single copy, and whenever that gold is delivered back to the client, the corresponding warehouse receipt(s) must be returned to the provider. If precious metal is relocated, the appropriate warehouse receipts will be exchanged or extended accordingly.
VAT-free storage without a minimum storage fee is also available for silver, platinum or palladium stored in a bonded warehouse. These white-metal investment products can be bought from precious metal dealers and delivered direct to a duty-free warehouse, which means they are not considered to be imported goods. Furthermore, any subsequent transfer of goods by means of a negotiable warehouse receipt can also be classified as VAT-free, provided the goods still remain in the duty-free warehouse.
Transfer of warehouse receipts and counterfeit protection
OrSuisse has made it easy for sellers and buyers to transfer warehouse receipts to a new owner. Every negotiable warehouse receipt includes dedicated endorsement fields on the back, so a document can be transferred up to six times. Each endorsement must be signed by both the seller and the buyer. This creates a purchase contract that is binding on both parties.
OrSuisse negotiable warehouse receipts thus represent significant value, reflecting current precious metal prices. Therefore, their issue is subject to modern security criteria to the same standard as currently applies to the printing of money. This ensures the highest possible level of counterfeit protection. Authorized retailers who purchase negotiable warehouse receipts use special testing procedures to verify their authenticity.
A comparison with precious metal ETFs and precious metal accounts
For clients who want to invest in precious metals and attach great importance to a secure right of return, there initially appears to be similarities between negotiable warehouse receipts and precious metal ETFs or precious metal accounts. However, when these options are considered in detail, some important differences emerge.
An exchange-traded fund (ETF) is a special kind of fund. These are essentially baskets of securities traded on the stock exchange, which are often issued by a bank or asset manager, and backed by physical precious metals. The owner of these bearer securities is therefore entitled to at least a theoretical claim to surrender. However, since banks usually store gold and silver, for example, as standard 400-ounce gold bars or 1,000-ounce silver bars, investors must own funds which can be precisely converted into these same value units. So, in practice, it is quite rare to see this kind of gold or silver transaction executed.
The situation is similar with precious metal accounts. This is a kind of bank account into which the investor regularly deposits money in order to purchase small or large amounts of gold, silver, platinum or palladium. In order to secure appropriate deposits, account providers buy precious metals on wholesale terms, usually in large units. And if customers should require a delivery, they must then dig deep into their pockets to fund this too. At the time of purchase, an investor acquires a debt instrument with a claim to the investment that is part of the bankruptcy estate in the event of a precious metal account provider’s insolvency. As a result, there is a risk that investors will only receive part of the value of their original deposits when the insolvency administrator distributes the bankruptcy assets among all creditors.
On the other hand, OrSuisse’s negotiable warehouse receipts always guarantee the exact 1:1 return of the items specified in the documents and stored in the warehouse. OrSuisse only provides individual custody, so there are no collective custody arrangements. All stored precious metals are thus clearly identified by bar or seal numbers, and always specifically assigned to a warehouse receipt. This means no large bars ever have to be ‘balanced’ to complete a transaction. In addition, these precious metals are not part of the company’s balance sheet and thus are never included in a bankruptcy estate in the event of insolvency. In any case, they remain the legal property of the client, who can always prove this by producing the warehouse receipt.
Overview of tradeable precious metal warehouse receipts
- OrSuisse negotiable warehouse receipts allow physical precious metals to be traded as securities without the movement of goods.
- Unlike bearer papers and registered papers, order papers allow secure and simple transfer by endorsement.
- Tradeable warehouse receipts can be offered to buyers worldwide. They can be used to secure credit, or sold directly to dealers.
- Negotiable warehouse receipts are linked to bank-independent storage in Switzerland. The items originally delivered are placed in segregated storage. Full insurance of the precious metals is included.
- OrSuisse securities make it possible to store gold with full title and a secure right of return. Silver and other white metals can be stored VAT-free in a duty-free warehouse, and also sold without physically moving the goods.
- In the case of precious metal ETFs and precious metal accounts, there is only the theoretical possibility of reclaiming the metals deposited. Negotiable warehouse receipts, on the other hand, guarantee the return of all your original coins and bars.