Paper Gold Scheme


Securities and Futures (Collective Investment Schemes) Notice prescribes the arrangements for the purchase of gold with certain specified characteristics as “paper gold schemes”. Such schemes are to be regarded as collective investment schemes and are subject to the regime under Part IV of the Securities and Futures Ordinance (“SFO”) (Cap. 571, Laws of Hong Kong).

What is this Paper Gold Scheme?

This Paper Gold Scheme is an investment instrument made available by the Bank to the market for investors who are interested in buying and selling paper gold by a pre-set contractual term without involving in any physical delivery of gold.

What are the choices of the currency denomination of the Scheme?

Currency denomination of the Scheme at your choice can be Hong Kong Dollar (“HKD”) and Renminbi (“RMB”). You can choose to buy or sell units of the Scheme either in HKD or RMB or in both currencies.

Do I need to open any account under the Scheme?

Your investments in the Scheme will be conducted through a non-interest bearing account under the Scheme. Therefore, you need to open a non-interest bearing account under the Scheme for the purchase or the sale of units of the Scheme.

Two types of such non-interest bearing accounts under the Scheme denominated in HKD and RMB respectively at your choice. You can choose to open either one account or both accounts. The respective account names are:

  • Paper Gold Scheme This is a HKD-denominated account designated for transactions in HKD
  • Renminbi Paper Gold Scheme This is an RMB-denominated account designated for transactions in RMB

Besides, you need to open a HKD account or RMB account (depending on the currency denomination of the non-interest bearing account you open with), as the settlement account for the debit and credit of the relevant amount based on the number of units you bought or sold of the Scheme.

Is there any physical delivery of gold?

The Scheme does not involve physical delivery of gold. You do not have any rights, ownership and possession of any physical gold. The allocation of units in the account under the Scheme is notional. The unit prices of the Scheme are calculated with reference to the prices of the reference asset (and are subject to the Bank’s profit margins).

Is there any guarantee or collateral?

There is NO guarantee on the capital invested by you. The Scheme is NOT secured on any assets or any collateral of the Bank.

What is the governing law of the Scheme?

The 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 Gold Scheme?

Product Type: Paper Gold
Account Type: A non-interest bearing account
Currency Denomination: a HKD or RMB-denominated
Account Name: There are two types of these non-interest bearing accounts, namely:
  • Paper Gold Scheme - This is a HKD-denominated account designated for transactions in HKD
  • Renminbi Paper Gold Scheme - This is an RMB-denominated account designated for transactions in RMB
You can choose to open either one or both accounts, depending on your preference to the currency choice for investing in the Scheme.
Quotation Unit: One unit of the Scheme
Quotation Unit Mechanism: One unit of the Scheme in HKD is equal to Loco London Gold price per ounce after converting USD into HKD using spot telegraphic transfer foreign currency exchange rate quoted by the Bank. One unit of the Scheme in RMB is equal to Loco London Gold price per ounce after converting USD into RMB using spot telegraphic transfer CNH rate against USD quoted by the Bank.
Reference Asset: Loco London Gold (It represents the basis for international trading and settlement in gold of London bullion market. It is a global over-the-counter gold trading without geographical constraint, which is a quotation made by dealers based on USD per ounce. The fineness is not less than 99.5%.)
Account Mechanism: Your investments in the Scheme will be conducted through a non-interest bearing account under the Scheme. The purchase of units of the Scheme will be credited to, while the sale of units of the Scheme will be debited to, this non-interest bearing account denominated in the same currency as the currency denomination of units of the Scheme you bought or sold. RMB is currently not freely convertible. You should note that if you buy any unit of the Scheme in RMB, you can only sell such unit in RMB. Likewise, if you buy any Scheme unit in HKD, you can only sell such unit in HKD.
Pricing Mechanism: Price per unit of the Scheme (whether in HKD or RMB) is referred to as a buying price if you would like to buy one unit of the Scheme from the Bank. Conversely, price per unit of the Scheme (whether in HKD or RMB) is referred to as a selling price if you would like to sell one unit of the Scheme to the Bank. The Bank’s profit margins would not exceed 1% of buying and selling prices per unit of the Scheme from time to time.
Minimum Transaction Amount: Minimum transaction amount is one unit (with multiples thereof for each increment)
Fees and Charges: There are no handling fees or charges of the Bank at the time of transaction. The Bank’s profit margins would not exceed 1% of buying and selling prices per unit of the Scheme from time to time. The Bank may vary or impose further fees and charges by giving at least 30 calendar days’ prior written notice.
Trading Means: Through the Bank’s branches and internet banking. Before placing buy and sell orders of the Scheme, you can obtain information on the prevailing prices of the Scheme through the Bank’s branch counters and internet banking.
Trading Time: Branches:
Monday – Thursday, 9:00am to 5:00pm;
Friday, 9:00am to 5:30pm
Internet Banking:
Monday 8:00am to Saturday 3:30am

Scenario Analysis

  • Hypothetical Examples of the Scheme in HKD

The following hypothetical examples are for illustrative purposes only and apply to the Scheme in HKD. They do not reflect a complete analysis of all possible potential gain or loss scenarios and must not be relied on as an indication of the actual performance of the reference asset of the Scheme. You should not rely on these examples when making an investment decision.

Scenario 1 - Prices of reference asset rise (Gain scenario)

Assuming the investor bought 10 units of the Scheme at HKD 12,000 per unit. Later, prices of the reference asset rose. The investor sold all the units at HKD 13,000 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 account.

 

Realized profit
=
(HKD 13,000 - HKD 12,000) per unit x 10 units
=
HKD 10,000

Scenario 2 - Prices of reference asset fall (Loss scenario)

Assuming the investor bought 10 units of the Scheme at HKD 13,000 per unit. Later, prices of the reference asset fell. The investor sold all the units at HKD 12,000 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 account.

Realized loss
=
(HKD 12,000 - HKD 13,000) per unit x 10 units
=
Loss HKD 10,000



Scenario 3 - Prices of reference asset is zero (Worst case scenario)

Assuming the investor bought 10 units of the Scheme at HKD 13,000 per unit. Later, prices of the reference asset fell and became zero per unit. In this scenario, investor suffers a loss of 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 the Scheme, investor can only claim as the Bank’s unsecured creditor. In the worst case scenario, investor may lose his/her entire investment.

 

  • Hypothetical Examples of the Scheme in RMB

The following hypothetical examples are for illustrative purposes only and apply to the Scheme in RMB. They do not reflect a complete analysis of all possible potential gain or loss scenarios and must not be relied on as an indication of the actual performance of the reference asset of the Scheme. You should not rely on these examples when making an investment decision.

Scenario 1 – Prices of the reference asset rise (Gain scenario)

Assuming the investor bought 10 units of the Scheme at CNH 12,000 per unit. Later, prices of the reference asset rose. The investor sold all the units at CNH 13,000 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 account.

 
Realized profit
=
 (CNH 13,000 –CNH 12,000) per unit x 10 units
=
CNH 10,000

Scenario 2 – Prices of the reference asset fall (Loss scenario)

Assuming the investor bought 10 units of the Scheme at CNH 13,000 per unit. Later, prices of the reference asset fell. The investor sold all the units at CNH 12,000 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 account.

Realized loss
=
(CNH 12,000 –CNH 13,000) per unit x 10 units
=
Loss CNH 10,000
 

Scenario 3 – Prices of the reference asset is zero (Worst case scenario)

Assuming the investor bought 10 units of the Scheme at CNH 13,000 per unit. Later, prices of the reference asset fell and became zero per unit. In this scenario, investor suffers a loss of 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 the Scheme, investor can only claim as the Bank’s unsecured creditor. In the worst case scenario, investor may lose his/her entire investment.

Scenario 5 – RMB appreciates against USD (Scenarios to illustrate the exchange rate effect on the investment value)

Unit price of the Scheme in RMB is denominated in RMB but the reference asset of the Scheme in RMB is denominated in USD. One unit of the Scheme in RMB is equal to the price of the reference asset per ounce after converting USD into RMB using spot telegraphic transfer CNH rate against USD quoted by the Bank. The value of the investments in the Scheme in RMB will be affected by (i) the movements of the price of the reference asset and (ii) the movements of CNH rate against USD (i.e. may move up or down). This can be illustrated by following hypothetical examples:

Day T:

Price of the reference asset (per ounce) = USD1,700
USD/CNH exchange rate = USD1: CNH6.30
Unit price of the Scheme in RMB = USD1,700 x CNH6.30
= CNH10,710 per unit

The value of the investments of 1 unit in the Scheme in RMB on Day T is CNH10,710

 Day T+1:

Case 1 – RMB appreciates against USD by 5% while price of the reference asset remains unchanged

Price of the reference asset (per ounce) = USD1,700
USD/CNH exchange rate = USD1: CNH6.00
Unit price of the Scheme in RMB = USD1,700 x CNH6.00
= CNH10,200 per unit

The value of the investments of 1 unit in the Scheme in RMB on Day T+1 is CNH10,200

Under this scenario, an investment loss due to fluctuation of RMB will be as follow:

Value on Day T+1 – Value on Day T

=      (CNH10,200 – CNH10,710) per unit x 1 unit

=      Loss CNH510   (i.e. CNH510 LESS than Day T)

Case 2 – RMB appreciates against USD by 5% while price of the reference asset rises by 2%

Price of the reference asset (per ounce) = USD1,734
USD/CNH exchange rate = USD1: CNH6.00
Unit price of the Scheme in RMB = USD1,734 x CNH6.00
= CNH10,404 per unit

The value of the investments of 1 unit in the Scheme in RMB on Day T+1 is CNH10,404

Under this scenario, an investment loss due to fluctuation of RMB will be as follow:

Value on Day T+1 – Value on Day T

=      (CNH10,404 – CNH10,710) per unit x 1 unit

=      Loss CNH306   (i.e. CNH306 LESS than Day T)

Case 3 – RMB appreciates against USD by 5% while price of the reference asset rises by 6%

Price of the reference asset (per ounce) = USD1,802
USD/CNH exchange rate = USD1: CNH6.00
Unit price of the Scheme in RMB = USD1,802 x CNH6.00
= CNH10,812 per unit

The value of the investments of 1 unit in the Scheme in RMB on Day T+1 is CNH10,812 

Under this scenario, an investment gain due to fluctuation of RMB will be as follow:

Value on Day T+1 – Value on Day T

=      (CNH10,812 – CNH10,710) per unit x 1 unit

=      CNH102     (i.e. CNH102 MORE than Day T).

What are the key risks in the Scheme ?

Exchange rate risk. Your investments in the Scheme in RMB are subject to exchange rate risk. Unit prices of the Scheme denominated in RMB are calculated with reference to the prices of gold / the reference asset (and are subject to the Bank’s profit margins). Since the reference asset is denominated in USD, even if the prices of gold / the reference asset rise, you may still incur losses if RMB appreciates against USD more (in percentage terms) than the increase in the prices of gold / the reference asset. The exchange rate for RMB is based on the spot telegraphic transfer offshore RMB exchange rate ("CNH rate") against USD. During the currency conversion process of converting USD into RMB or vice versa, value of RMB against USD fluctuates.
Not principal protected.
Your investments in the Scheme are not principal protected. In case of worst case scenario, you can lose your entire investment.
Not a time deposit. Your investments in the Scheme are not a time deposit.
Not an interest-bearing account.
The account through which the investment in the Scheme conducted is not an interest-bearing account with neither yield nor interest provided.
Not protected deposit.
Your investments in the Scheme are not protected deposits and are not protected by the Deposit Protection Scheme in Hong Kong.
No physical delivery of gold. The Scheme does not involve physical delivery of gold. You do not have any rights, ownership and possession of any physical gold. The allocation of units in the account under the Scheme is notional. The unit prices of the Scheme are calculated with reference to the prices of the reference asset (and are subject to the Bank’s profit margins).
There is NO collateral.
The Scheme is NOT secured on any assets or any collateral of the Bank.
Not the same as investment in gold. Investing in the Scheme is not the same as investing in gold. Price changes in gold might not reflect in price changes of the Scheme.
Volatility of price.
Buying and selling prices per unit of the Scheme are calculated with reference to the prices of the reference asset (and are subject to the Bank’s profit margins). You should recognize that the unit prices of buying and selling the Scheme are volatile due to the price changes in the reference asset resulted from demand and supply of the reference asset and may go up and down.
Market risk.
The prices of the reference asset may go up and down due to movement in macroeconomic factors which include but are not limited to interest rate, inflation, economic growth and geopolitical tension. Buying and selling prices per unit of the Scheme are calculated with reference to the prices of the reference asset (and are subject to the Bank’s profit margins), and thus, your investments in the Scheme are subject to market risk.
Credit risk of the Bank.
Your investments in the Scheme are subject to credit risk of the Bank. Material adverse changes in the financial condition of the Bank may impair or affect the ability of the Bank to meet its obligations under the Scheme.
Insolvency risk of the Bank.
There is no assurance of protection against a default by the Bank in respect of its payment obligations. If you invest in the Scheme, you are relying upon the creditworthiness of the Bank and of no other person. If the Bank becomes insolvent or default on its obligations under the Scheme, you can only claim as the Bank’s unsecured creditor. In the worst case scenario, you may lose your entire investment.
Early termination risk. The Bank may terminate the Scheme in good faith and in a commercially reasonable manner with at least 30 calendar days’ prior notice to you. In such scenario, if you could not sell your Scheme units back to the Bank before the termination date, the amount payable by the Bank back to you on such termination will be the prevailing price of your Scheme units as quoted by the Bank at the date of termination, which may be substantially less than your investments in the Scheme.
Set-off and Lien.
The Bank has the right to combine or consolidate any balances standing to the credit of your account under the Scheme with the Bank to set-off against any indebtedness owed by you to the Bank. Under the terms and conditions governing the account under the Scheme as set out in the Bank’s Master Terms and Conditions 每 Investment Products (as amended from time to time), in addition to any lien that the Bank may be entitled, at any time and without prior notice, applies the value of the Scheme standing to the credit of your account towards discharge of any of your liabilities owed to the Bank. Copies of the Master Terms and Conditions 每 Investment Products are available at the Bank’s branches in Hong Kong.
Conflicts of interest. Potential and actual conflicts of interest may arise from the different roles played by the Bank and the Bank’s subsidiaries and affiliates in connection with the Scheme. Although the Bank’s economic interests in each role may be adverse to your interests in the Scheme, the Bank sets the necessary regulatory information barriers among its different business areas as well as formulates policies and procedures for minimizing and managing such conflicts of interest, so as to comply with applicable laws and regulations, and to ensure the Bank’s transactions or dealings will be transacted at arm’s length.
RMB currency risk. The RMB is not currently a freely convertible currency and is subject to exchange control policies and restrictions. Before you purchase units of the Scheme in RMB, you should ensure there is sufficient RMB in your designated settlement account denominated in RMB. You may have to convert non-RMB currency into RMB, if you have insufficient RMB in the RMB settlement account. There is no guarantee that RMB will not depreciate and investors may suffer a loss if they convert another currency into RMB so as to invest in the units of the Scheme in RMB and subsequently convert the RMB redemption proceeds back into such currency. RMB is the only official currency of the PRC. While both onshore RMB (“CNY”) and offshore RMB (“CNH”) are the same currency, they are traded in different and separated markets. Since the two markets operate independently where the flow between them is highly restricted, CNY and CNH are traded at different rates and their movement may not be in the same direction. In calculating the price of a unit of the Scheme in RMB, the CNH rate will be applied. It should also be noted that the CNH rate may be at a premium or discount to the exchange rate for onshore RMB market in PRC and there may be significant bid and offer spreads. The value of your units / investments thus calculated will be subject to fluctuations.

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.