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3175 Helps investors or itself?

  • Leader
    Oct 16
    After U.S. WTI crude oil futures plunged, not only did retail investors
    who bet on the rebound in oil prices feel “upset”, even ETF issuers were
    “surprised”. With regard to Samsung S&P GSCI Crude Oil ER Futures
    ETF (HKEX Stock code: 3175), an announcement was issued on Wednesday
    evening that the entirely of its holding of June 2020 contracts had been
    replaced by September 2020 contracts in the night market.To get more
    news about WikiFX, you can visit wikifx official website.

      3175 claimed that its objective to track the “S&P GSCI Crude Oil
    Index Excess Return”, and the index also clearly stated that the next
    roll-over operation would be conducted on May 7-13, when the June 2020
    contract tracked will be replaced by July 2020 contracts. 3175 suddenly
    changed its investment strategy with a high sounding reason that June
    2020 contract may fall to zero or a negative value, “In the worst case
    scenario, the Net Asset Value of the Sub-Fund may drop to zero and
    investors may suffer a total lose of their investment in the Sub-Fund.”

      In fact, as mentioned in previous articles of 3175, if the Net Asset
    Value of all Fund units is below 150 million Hong Kong dollars (page 36)
    or 40 million Hong Kong dollars (page 71), the Sub-Fund will be
    terminated, which means it will stop trading and go into liquidation. So
    even if June 2020 oil futures falls to a negative value, investors
    theoretically would not lose all. As long as it is clear that the market
    risk is borne by investors, ETF issuers dont need to take such a big
    risk of roll-overing in advance.

      But why would Samsung roll-over? There are two reasons; First, the
    company doesnt want to suffer huge losses. Second, 3175 is the most
    important “cash cow” for issuer, who certainly do not want to stop
    trading.

      Once the oil price falls to a negative value, the transaction of 3175
    will be terminated. So how should the issuer deal with its crude oil
    futures? A few days earlier, when oil prices fell to a negative value,
    the decline could quickly make the oil price expand to -40 US dollars
    per barrel. Before the roll-over, 3175 held about 35,000 oil futures
    contracts, and each contract was equivalent to 1,000 barrels of crude
    oil. It the issuer forcibly closes the position at a price of -40 US
    dollars per barrel, the total loss of these futures contracts will reach
    about 1.4 billion US dollars (about 11 billion Hong Kong dollars).
    therefore, how many Galaxy mobile phones will Samsung have to sell to
    pay it off?

      On the other hand, from the perspective of the issuer, 3175 has become
    the most famous speculative oil trading tool in Hong Kong stock market,
    with a turnover from about 300 million dollars per day in early March
    to 1.94 billion dollars recently. So the issuer who can make huge
    profits in the transaction hates the termination of 3175 transaction
    most.

      Clients ask to buy Tencent (700), but the broker buys HSBC (005) and
    then makes a notice; investors want to bet on the rebound of June oil
    price, but 3175 roll-overs the June old futures replaced by September
    oil futures without timely notification. So far, the SFC and SEHK has
    said nothing about it. And ETF transaction continues, which seemed to be
    allowed. If the investment strategy written in black and white clearly
    can be changed without any regulatory consequences, how can the
    interests of investors be protected?