An ETC issuer to expand Currency ETC platform with 22 new Currency ETCs

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• Four new emerging market Currency ETCs with long or short exposure to the Chinese Renminbi and Indian Rupee
• 18 new GBP-based Currency ETCs with long or short exposure to G10 currencies
• 28 existing Currency ETCs accumulate $200m on London Stock Exchange and Deutsche Börse
• Exposure to world’s most liquid asset class through a total of 50 Currency ETCs

ETF Securities (ETFS) is planning to expand the world’s largest and Europe’s first Exchange Traded Currency (Currency ETCs) platform with the launch of four emerging market and 18 GBP-based Currency ETCs on London Stock Exchange (LSE) in the coming weeks. The Currency ETCs are based on the MSFX^SM Index Family, which are designed by Morgan Stanley as a tradable benchmark for foreign exchange rate performance.

For the first time in Europe, investors will have access to emerging market Currency ETCs which enable investors to go long or short the Chinese Renminbi (CNY) or the Indian Rupee (INR). Since launching its Currency ETC platform, ETF Securities has received significant interest for emerging market currencies such as the Chinese Renminbi and the Indian Rupee, which are traditionally difficult to access for non-domestic investors.

With booming local economies, investment demand for emerging market equities, bonds and currencies continues to grow. Many emerging market currencies are not accessible to foreign investors due to restrictions or capital controls however foreign investors are able to access these markets through Non Deliverable Forward (NDF) contracts and now Currency ETCs.

Currency ETCs and NDFs provide access to otherwise inaccessible markets. NDF markets are impacted by many factors including expectations of the relevant exchange rates and central bank policies. Therefore even though a currency such as the Chinese Renminbi is pegged to the US Dollar (USD), it is possible for emerging market Currency ETCs to change in price. For example, if there is a change in investor’s expectations regarding the Chinese Renminbi such that CNY is expected to appreciate versus USD at some point in the near future, then the price of ETFS Long CNY Short USD would likely rise, and the value of ETFS Short CNY Long USD would likely fall.

In addition, 18 long and short developed market G-10 Currency ETCs versus GBP will be added to the platform, complementing the existing 28 long and short G-10 Currency ETCs versus USD and the Euro. The new Currency ETCs versus GBP will offer greater choice and flexibility for local investors, enabling them to take long or short exposures against the British Pound. With the British Pound being weighed down by debt and default concerns in the current environment, investors will be able to use new Currency ETCs such as ETFS Long USD Short GBP (GBUS) or ETFS Long CHF Short GBP (GBCH) to play the relative safety of the US Dollar or the Swiss Franc versus GBP.

The 22 new securities to be listed on the London Stock Exchange are:

Emerging Market Currencies vs. USD

Currency ETCs are intended for investors wishing to diversify their portfolio through the addition of a new asset class which has a low correlation with equities and bonds, or for those investors wanting to take advantage of tactical or strategic macro opportunities using the foreign exchange market. To date, Currency ETCs exposed to JPY, AUD, GBP and EUR have been the most popular. Since the launch of the Currency ETCs in November 2009, assets have grown to approximately $200 million 4th June 2010 and average monthly trading volumes have risen strongly, up over 970% since start of 2010 .

Nik Bienkowski, Chief Operating Officer, commenting on the launch, said:

“Currencies have been around for many centuries, however until the turn of the 20th century, investors focused primarily on equities and bonds. With today’s financial crisis continuing and the poor performance of equities over the past ten years, we’ve seen that investors are looking for liquid and transparent markets and thus currencies are starting to appear on their radar screens. In addition, currencies are driven by the macro environment which has shown high volatility in the past few years, and because currencies are valued relative to other currencies, therefore if one goes up then the other must go down. Thus depending on whether an investor has gone long or short, an investor can potentially profit regardless of market direction”.

Martin Arnold, Senior Research Analyst, commenting on the launch, said:

“Strong growth in recent years has forced policymakers to tighten monetary policy to contain inflationary pressures in certain Asian emerging countries. The Chinese Renminbi has appreciated by approximately 18% versus USD over the past five years against a back drop of 8% to 12% p.a. GDP growth in China and one of the worst financial crises ever in the United States. Over the same period, the Indian Rupee has slightly depreciated against USD despite India’s 6% to 10% p.a. GDP growth. Further rate hikes and currency revaluations might be expected for these two economies which are dominating growth in the region. Currency ETCs tracking emerging NDF markets, namely the Chinese Renminbi and the Indian Rupee, provide an investment vehicle to take advantage of potential policy changes”.

In the current environment the critical issue from a UK perspective is the parlous fiscal situation: while the newly formed Coalition British government is cognisant of the importance of reducing the deficit, the key is the implementation of effective policy. Investors appear to be growing confident that this can happen. However, against other G10 currencies like the Norwegian Krone, where fiscal problems are non-existent, the outlook for GBP looks somewhat more bleak. A similarly bleak outlook could be in store for GBP against the New Zealand Dollar, where rate hikes are increasingly expected. Being able to trade GBP against other G10 currencies through Currency ETCs now offer investors additional flexibility.”

Commenting, Pietro Poletto, Head of Fixed Income at London Stock Exchange Group, said:

“London has long been the global centre for foreign exchange trading, with an unparalleled pool of investors and expertise. The products launched on the London Stock Exchange today will enhance that status by offering a new way to access increasingly significant and sought after currencies from around the world. Currencies like the Indian Rupee and the Chinese Remnimbi, not previously tradable on a stock exchange, can now be traded in a new way in the world’s foreign exchange capital.

The products launched today will further diversify the range of instruments hosted by London Stock Exchange Group which as well as hosting Europe’s first suite of Currency ETCs, is Europe’s leading ETP exchange, hosting more trades than any other operator, and listing over 700 products across London and Milan.”