Rand Merchant Bank (RMB) has launched its second commodity Exchange-Traded Note (ETN), the RMB Coal ETN, which will list on the JSE on Thursday.
This follows the success of the RMB Oil ETN, listed in December 2010.
The RMB Coal ETN offers investors a way to invest directly in coal and is an alternative to investing in a coal-producing company. Until now, Coal Exchange-Traded Products (ETPs) across the globe have only invested in companies linked to coal mining, equipment or transportation and have not offered a direct investment into coal via physical coal or coal futures.
The RMB Coal ETN is the first of its kind in that it invests in coal futures, namely the Richards Bay Coal Futures contract, traded on ICE, the electronic trading platform for commodity, currency, credit and equity index markets.
The Richards Bay Coal Terminal, located in the Richards Bay harbour, is the largest coal export facility in the world. Nearly all of South Africa's export coal is sent through the terminal on the Kwazulu- Natal east coast. South Africa has 3.7% of the world's reserves, with 4% of global production and is by far the largest producer in Africa as well as being a major global producer after China, Australia, Canada, USA and Indonesia.
A single unit of the RMB Coal ETN will give an investor exposure to 1 tonne of coal, making the product more accessible and easier to invest in than directly into a futures contract, which typically trades at 5,000 tonnes of coal.
Investor funds earn interest at US Treasury bill rates on the full amount of the note though the RMB Coal ETN is listed and traded in rands. The investor therefore gets a return based on the coal future, treasury bill rates and the USD/ ZAR exchange rate.
An investor fee of 95 basis points is deducted annually and the notes can be traded during JSE market hours with a minimum trade size of 1 unit, while the index value of the RMB Coal Index is published daily. RMB is the market maker so investors can buy or sell on the JSE through any registered broker (fees apply) while large volumes can be traded directly with RMB. ETNs trade exactly like shares on the JSE.
ETNs also have a low cost base, they are transparent, liquid and offer accessibility to a wide range of investments which may otherwise be unavailable to investors. - I-Net Bridge