Precious Metal Services

What is this Paper Precious Metal Scheme?

This Paper Precious Metal Scheme is an investment instrument made available by the Bank to the market for investors who are interested in buying and/ or selling paper precious metal without involving in any physical delivery of any precious metal.

What are your choices of the Denomination Currency of this Paper Precious Metal Scheme?

The Denomination Currency at your choice can be USD or Renminbi (“RMB”). You should note that you can only sell the unit(s) of a Paper Precious Metal in the same Denomination Currency that you purchase such unit(s) of Paper Precious Metal.

How do you conduct a transaction under this Paper Precious Metal Scheme?

You need to open a non-interest bearing account, namely “Paper Precious Metal Scheme Account”, and open a saving account as the settlement account with the Bank for any buy or sell transaction under this Paper Precious Metal Scheme. We offer 9 types of Paper Precious Metal Scheme Accounts under this Paper Precious Metal Scheme:

The purchase or sale of units of any Paper Precious Metal will be credited to or debited from the corresponding Paper Precious Metal Scheme Account. The amount receivable by the Bank from you or the amount payable by the Bank to you is based on the number of units you bought or sold under this Paper Precious Metal Scheme. The buying and selling prices per unit of a Paper Precious Metal are calculated by reference to the prevailing market price of the relevant Reference Asset (and are subject to the prevailing exchange rate of the Denomination Currency and the Bank’s profit margins). As such, the relevant amount receivable or payable by the Bank (as the case may be) will be debited from, or credited to, your designated settlement account denominated in the same currency as the Denomination Currency of the relevant Paper Precious Metal you bought or sold.

Is there any physical delivery of the precious metal?

This Paper Precious Metal Scheme does not involve physical delivery of any precious metal. You do not have any rights, ownership or possession of any physical precious metal. The allocation of units in any Paper Precious Metal Scheme Account under this Paper Precious Metal Scheme is notional. The buying or selling price per unit of a Paper Precious Metal is calculated by reference to the prevailing market price of the corresponding Reference Asset and is subject to the prevailing exchange rate of the Denomination Currency and the Bank’s profit margins.

Is there any guarantee or collateral?

What is the governing law of this Paper Precious Metal Scheme?

This Paper Precious Metal Scheme is governed by the laws of Hong Kong Special Administrative Region (“HKSAR”) of the People’s Republic of China (“PRC”).

What are the key features of this Paper Precious Metal Scheme?

Scenario Analysis

• Hypothetical Examples for an investment with USD as the Denomination Currency

The following scenarios are based on an investment with (i) USD as the Denomination Currency and (ii) Silver as the corresponding Reference Asset.

Scenario 1 – Unit Price of Paper Silver rises (Gain scenario)

Assuming the investor bought 100 units of the Paper Silver at USD 31 per unit. Later, the unit price of the Paper Silver rose. The investor sold all the units at USD 33 per unit. The purchase of units was reflected as a credit while the sale of units was reflected as a debit respectively in the investor’s Paper Precious Metal Scheme Account.

Scenario 2 – Unit Price of Paper Silver falls (Loss scenario)

Assuming the investor bought 100 units of the Paper Silver at USD 33 per unit. Later, the unit price of the Paper Silver fell. The investor sold all the units at USD 31 per unit. The purchase of units was reflected as a credit while the sale of units was reflected as a debit respectively in investor’s Paper Precious Metal Scheme Account.

You suffered a realised loss calculated as follows:
=	(USD31 – USD 33) per unit x 100 units
=	Loss USD 200

Scenario 3 – Unit Price of Paper Silver drops to zero (Worst case scenario)

Assuming the investor bought 100 units of the Paper Silver at USD 33 per unit. Later, the unit price of the Paper Silver dropped to zero per unit. In this scenario, the investor suffered a total loss of his/her entire investment amount.

Scenario 4 – The Bank becomes insolvent or defaults on its obligations (Insolvent or default scenario)

Assuming the Bank becomes insolvent or defaults on its obligations under this Paper Precious Metal Scheme, the investor can only claim as the Bank’s unsecured creditor. In the worst case scenario, the investor may lose his/her entire investment.

• Hypothetical Examples for an investment with RMB as the Denomination Currency

The following scenarios are based on an investment with (i) RMB as the Denomination Currency, (ii) Silver as the corresponding Reference Asset, and (iii) the Quotation Unit Mechanism on a per gram basis.

Scenario 1 – Unit Price of Paper Silver rises (Gain scenario)

Assuming the investor bought 100 units (on a per gram basis) of the Paper Silver at RMB 6.5 per unit (on a per gram basis). Later, the unit price of the Paper Silver rose. The investor sold all the units at RMB 7.5 per unit (on a per gram basis). The purchase of units was reflected as a credit while the sale of units was reflected as a debit respectively in the investor’s Paper Precious Metal Scheme Account.

You received a realised profit calculated as follows:
=	(RMB 7.5 – RMB 6.5) per unit* x 100 units
=	RMB 100

Scenario 2 – Unit Price of Paper Silver falls (Loss scenario)

Assuming the investor bought 100 units (on a per gram basis) of the Paper Silver at RMB 7.5 per unit (on a per gram basis). Later, the unit price of the Paper Silver fell. The investor sold all the units at RMB 6.5 per unit (on a per gram basis). The purchase of units was reflected as a credit while the sale of units was reflected as a debit respectively in investor’s Paper Precious Metal Scheme Account.

You suffered a realised loss calculated as follows:
=	(RMB 6.5 – RMB 7.5) per unit* x 100 units
=	Loss RMB 100

Scenario 3 – Unit Price of Paper Silver drops to zero (Worst case scenario)

Assuming the investor bought 100 units (on a per gram basis) of the Paper Silver at RMB 6.5 per unit (on a per gram basis). Later, the unit price of the Paper Silver dropped to zero per unit (on a per gram basis). In this scenario, the investor suffered a total loss of his/her entire investment amount.

Scenario 4 – The Bank becomes insolvent or defaults on its obligations (Insolvent or default scenario)

Assuming the Bank becomes insolvent or defaults on its obligations under this Paper Precious Metal Scheme, the investor can only claim as the Bank’s unsecured creditor. In the worst case scenario, the investor may lose his/her entire investment.

Scenario 5 – Illustration of how the Unit Price of the Paper Silver is affected by the prevailing exchange rate and the market price of the corresponding Reference Asset

You should note that the market price of the corresponding Reference Asset (i.e. Silver) is customarily quoted in USD in the international bullion market, while the unit price of the Paper Silver is quoted in RMB. Accordingly, the unit price of the Paper Silver will be affected by (i) the market price of Silver, (ii) the prevailing exchange rate between USD and offshore RMB at the time the unit price is recorded and (iii) the Bank’s profit margins.

The following examples illustrate how the unit price of the Paper Silver will be affected by the market price of Silver and the prevailing exchange rate between USD and offshore RMB. Please note that the following examples do not take into account the Bank’s profit margins.

Assuming that on Day 1, the investor bought 100 units (on a per gram basis) of the Paper Silver at RMB 6.08 per unit (on a per gram basis) which is calculated as follows:

• Market price of Silver (quoted on a per ounce basis): USD 30.00
• USD/RMB exchange rate on Day 1: 6.30
• Unit price of the Paper Silver (on a per gram basis)*: USD 30.00 / 31.1035 x 6.30 = RMB 6.08 (2 decimal places)

Case A – Offshore RMB appreciates against USD by 5% while the market price of Silver remain unchanged

Assuming that on Day 2, the investor sold all the units at RMB 5.79 (on a per gram basis), which is calculated as follows:

• Market price of Silver (quoted on a per ounce basis): USD 30.00
• USD/RMB exchange rate on Day 2: 6.00
• Unit price of the Paper Silver (on a per gram basis)*: USD 30.00 / 31.1035 x 6.00 = RMB 5.79 (2 decimal places)

You suffered a realised loss calculated as follows:
=	(RMB 5.79 – RMB 6.08) per unit* x 100 units
=	Loss RMB29.00

Case B – Offshore RMB appreciates against USD by 5% while the market price of Silver rises by 2%

Assuming that on Day 2, the investor sold all the units at RMB 5.90 (on a per gram basis), which is calculated as follows:

• Market price of Silver (quoted on a per ounce basis): USD 30.60
• USD/RMB exchange rate on Day 2: 6.00
• Unit price of the Paper Silver (on a per gram basis)*: USD 30.60 / 31.1035 x 6.00 = RMB 5.90 (2 decimal places)

You suffered a realised loss calculated as follows:
=	(RMB 5.90 – RMB 6.08) per unit* x 100 units
=	Loss RMB18.00

 

Case C – Offshore RMB appreciates against USD by 5% while the market price of Silver rises by 7%

Assuming that on Day 2, the investor sold all the units at RMB 6.19 (on a per gram basis), which is calculated as follows:

• Market price of Silver (quoted on a per ounce basis): USD 32.10
• USD/RMB exchange rate on Day 2: 6.00
• Unit price of the Paper Silver (on a per gram basis)*: USD 32.10 / 31.1035 x 6.00 = RMB 6.19 (2 decimal places)

The investor received a realised profit calculated as follows:
=	(RMB 6.19 – RMB 6.08) per unit* x 100 units
=	RMB 11.00

* Quotation Unit is quoted based on a per gram of Loco London Silver basis. The ratio of one ounce to one gram is: 1 ounce = 31.1035 gram.

What are the key risks in the Scheme ?

Important Notice

The above risk disclosure statements cannot disclose all the risks involved. Before making investment decision, you should thoroughly study the offering documents, financial reports and relevant risk disclosure statements issued by the issuer of the investment product(s). Further you should consider your own circumstances including financial position, investment experience and objective to ensure the investment is suitable for your particular investment needs and risk tolerance capacity. You should seek independent financial and professional advice before trading or investment. This promotional material does not constitute an offer or solicitation for the purchase or sales of any investment products. This promotional material is issued by Industrial and Commercial Bank of China (Asia) Limited (the “Bank”) and the contents have not been reviewed by Securities and Futures Commission.