Magazine article American Banker

State Street Expects New Pacts to Boost Gold ETF

Magazine article American Banker

State Street Expects New Pacts to Boost Gold ETF

Article excerpt

Byline: Steve Garmhausen

State Street Corp.'s gold-tracking exchange-traded fund stands to draw more assets from recent agreements that allow its use in futures and options contracts, according to an executive at the Boston company.

The four-year-old SPDR Gold Trust began being used in such trades in early June on several exchanges, including the Chicago Board Options Exchange. Within a month the ETF had become the most actively traded call contract on the exchange. This means that investors were busily buying the right to purchase shares at a certain price before a pre-established deadline.

"One thing we know is that the more avenues there are for an institutional investor to express a view, the better," said Anthony Rochte, co-head of the ETF business at State Street Global Advisors, State Street's asset management arm. "So if they've got derivatives contracts with a fully collateralized ETF, they can do different types of trades, and that drives demand and interest in the ETF."

SPDR Gold Trust is considered to be fully collateralized because it actually holds gold bullion, and its shares reflect its changing market value. The ETF, which has assets of about $19 billion, was formed by State Street Global Advisors and the World Gold Council, an association of gold mining companies. It was the first U.S. commodity-based ETF.

Because the Securities and Exchange Commission considers the fund a security rather than a commodity, institutional investors barred from dealing in commodities can add gold to their portfolios without running afoul of their restrictions, according to George Simon, a partner in Foley & Lardner LLP, a Chicago law firm.

After a year, new stocks are eligible for option trading, but the SEC at first refused to allow the fund to be used in options trading, said Mr. Simon, whose firm represents the World Gold Council. …

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