Allocated Bullion Exchange

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Gibbo
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Allocated Bullion Exchange

Dear Turd & Turdites,

As a member of the ABX I thought I’d give you an update that I learnt about last week and received by official e-mail confirmation early this afternoon (21 June 2016). The e-mail is as follows (my comments follow):

***

Dear Member,

In an effort to provide fair, orderly and transparent markets, the ABX Listing Committee conducts quarterly reviews of all hubs and contract offerings. The purpose of these reviews is to place front and centre the objective of providing deep liquidity with institutional pricing for physical allocated precious metals.

HUB SUSPENSION
As a result of the latest review conducted in May 2016, the review committee has voted to suspend the following hubs effective 5.00pm Thursday 30 June 2016 AEST:

Australia

  • Melbourne
  • Adelaide
  • Perth

Global

  • Istanbul
  • Bangkok
  • Auckland
  • Shanghai

The closing of these hubs allows for ABX to focus our liquidity in higher volume hubs.

AUSTRALIA/AUD CONTRACT SUSPENSION 
To coincide with the suspension of the listed Australian hubs, ABX shall be removing the following contracts traded in AUD effective 5.00pm Friday 29 July 2016 AEST:

GOLD

  • American Buffalo
  • Chinese Panda

SILVER

  • Austrian Philharmonic

PLATINUM

  • 1/2 ounce Pooled Contract
  • 1 Kg bar
  • Canadian Maple

Existing holdings for continuing ABX contracts will be transported from Melbourne, Adelaide and Perth to Sydney at no cost.

Clients with holdings delisted within Australia, and who do want to have their holdings relocated, can choose from the options below:

1. Take delivery of the metal for which ABX will waive the withdrawal fee and facilitate transportation to you at cost price;
(An amnesty period of 90 days shall be provided for withdrawal following the delisting of contracts. If your metal is not withdrawn in this time frame, ABX member services will contact you to determine delivery or disposal) or

2. Trade out of positions on MetalDesk prior to contract delisting.
Note: In Australia clients cannot collect from vaults.

GLOBAL/USD CONTRACT SUSPENSION 
To coincide with the suspension of the above listed Global hubs, ABX shall be removing the following contracts traded in USD effective 5.00pm Friday 29 July 2016 AEST:

GOLD

  • ½ Ounce Pool
  • Kangaroo
  • Buffalo
  • Maple
  • Philharmonic
  • Panda

SILVER

  • 1oz Pool
  • Kookaburra/Koala
  • Eagle
  • Maple
  • Philharmonic
  • 10 oz Minted

PLATINUM

  • ½ ounce Pool
  • Maple

Existing holdings for continuing ABX contracts will be transported from the suspended vault to a vault location of your choice free of charge. Please nominate, or a new vault location will be assigned to you by ABX.

Clients with contracts delisted may choose one of the options listed below:

1 Take delivery of the metal for which ABX will waive the withdrawal fee and facilitate transportation to you at cost price; 
(An amnesty period of 90 days shall be provided for withdrawal following the delisting of contracts. If your metal is not withdrawn in this time frame, ABX member services will contact you to determine delivery or disposal) or

2. Trade out of positions on MetalDesk prior to contract delisting.
Note: With vaults ex Australia you may be eligible to collect directly from vaults. 
 

Since 2012, Bullion Capital has been the trading entity and a full member of Australian Bullion Exchange (ABX) and as a result of this, ABX has been successful in creating a strong and viable value proposition for our members and associate members. Now, as ABX moves to the next exciting phases of growth, we must make the necessary changes to ensure ongoing transparency in all that we do and prepare the transition to a fully integrated institutional exchange framework.

Listed below are the following changes that will take effect from Friday 1 July 2016:

  • Bullion Capital will be acquired by BCL Capital Management Ltd and will cease trading as a business arm of Australian Bullion Exchange Limited.
  • Australian Bullion Exchange Ltd will formally change its name to Allocated Bullion Exchange Ltd.
  • Bullion Capital will remain a Full Member of Allocated Bullion Exchange (ABX) with no interruption to existing service provision to you.

With these changes comes the appointment of Bullion Capital's strong and experienced leadership team that will be there to assist in your growth and investment objectives:

Tony Velez – t------@bullioncapital. com
Edward Stanley-Cary – e-------@bullioncapital. com
Jeremy Dean – j-------@bullioncapital. com

For further information please contact your member or contact ABX directly on +61 7 3211 5007 or info @ abx.com.

Yours faithfully,
ABX Listing Committee

***

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Gibbo
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My Comments on the ABX

Those following the development of the ABX will be aware of the delays leading to its launch 10 February this year and I don’t doubt that the above will raise some cynical eyebrows. It did mine.

Whilst this withdrawal of hubs and products has been spun as a way to provide better liquidity, which it will by concentration / focus on less hubs and a smaller number of products, however, that I believe that to be a distraction from the reason the above had to occur in the first place.

In the attempt to develop the ABX, they were/are attempting to do something good, great and unique in the precious metals industry; real & fair price discovery, no-front running of orders and removal of the paper influence whilst drastically improving much needed transparency.

To pull off such a feat, people such as Tom Coughlin, would have relied heavily on expert advice from within the bullion industry, hence their ‘Advisory Committee’.

The provision of the full range of international hubs and products that it originally offered would have been based on advice from this committee that:

  1. Those markets, such as Auckland, had sufficient Institutional demand to warrant their existence.
  2. Institutional demand wanted coins and pooled bars.

Clearly that advice was of poor quality and has led the ABX to over-extend themselves on the expectation of over-estimated institutional demand in those hubs and for those products.

The number of available international hubs has gone from 11 to 7 and the number of products has dropped from 23 to 9 (I was originally told it was only the coins that were being withdrawn).

I know that people like Andrew Maguire are drinking buddies of Craig, but with all due respect, his advice to the ABX along with the other members of the Advisory Committee have undermined this start-up company, as people such as Tom are deeply reliant upon their guidance to set-up their exchange to be able to provide a stable platform from which they could reach their goals and gain strength to allow expansion into lesser hubs and with a greater range of products.

I am not impressed at all by the quality of advice and guidance that their committee must have given the ABX that led them to believe that they could expand in the unsupportable manner that they did. So shame on them and I put a substantial part of the blame of today’s announcement at their doorstep.

So, now what does all this mean?

Prior to receiving the above e-mail from ABX, I noticed a problem this morning in MetalDesk to do with a client holding where the value of their gold holding was Zero and they were showing a total loss – I realised that this was due to there being no Buy order for the product they held (pooled gold contract).

I tried to contact ABX to say that their pricing system is at fault because how can a gold holding be priced as worthless based on a local market price being zero when internationally it has serious worth?

Is this an unintended flaw of exclusively using local pricing to value an international monetary metal?

Whilst I admit that this did not dawn on me when I became a member of the exchange, I can now see that this exclusive local market pricing can and will reduce the book value of your bullion holding to Zero if there is Zero local demand. You are in effect ‘locked-in’ to your position, irrespective of international demand and value.

Not an Unknown Issue

However, one of the many things that I have raised repeatedly with ABX for the last year and a half was to do with a flaw in their pooled contracts. They bushed it off and said it was an exceedingly remote possibility, but they would look at revising it - they never did. Now that remote issue is a real problem.

I pointed out that there is nothing in their Quality Assurance Framework (QAF) relating to what happens to pooled contracts in the event of bankruptcy / cessation of business, and also what happens if it turns out one of the lots was owned by someone who was deceased in somewhere like Cyprus where it takes up to 2 years to get probate.

I asked, as no-one is going to want to buy out the remaining portion of the pooled bar that contained the deceased lot, as they would be locked into it for up to 2 years – who is the buyer of last resort?

There is no stated / given authority for an Administrator to liquidate the entire bar in the QAF (it’s for this reason that GoldMoney’s T&Cs say they will liquidate your position).

So now that the pooled contracts are being withdrawn, no-one is offering to buy into it as you need to amass 400 ozs of gold pool to be eligible to withdraw it.

Now my clients can’t do either of the 2 options offered by ABX on the soon to be expired contracts. They can’t withdraw, because it’s below threshold; they can’t sell it as there are no buyers. They are locked into their holding same as I pointed out would happen.

ABX hasn’t come back with any answers yet on who is going to be the buyer of last resort.

How do I explain that one to my clients!?

TurdVille Feedback

Following this setback, I now have to reposition my company in light of the smaller value products being removed. So as TurdVille is full of fantastically enlightened people....

Any ideas at who and how to pitch it now, if you think it necessary / worthwhile?

What do you consider to be ‘good’ institutional candidates that might not necessarily be using physical bullion but do dabble in paper?

Can you think of anything 'niche', as the big boys are either already sorted or being heavily chased by others?

The remaining products are:

Gold Bars

  • 10 X 1 kg
  • 1 kg 9999
  • 1 kg 995
  • 10 oz
  • 100 gram

Silver Bars

  • 250 x 100 oz
  • 100 oz
  • 1 kg

Platinum

  • 1 kg

Your feedback and help would be much appreciated.

David Gibson, Managing Director - GoldVu

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Swift Boat Vet
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Thanks for the report

I was kind of planning a possible use of ABX for a gold ounce(s) now and then, especially as the GS ratio becomes more favorable for slow migration to a proper mix of gold / silver.   Needless to say,  Buffalos were going to be my form of investment to take full advantage of the withdrawl / cash out options.   Am I reading this right in that I should now find another avenue?

Swifty

rxman
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I say throw this thread into

Cal lawyers inbox and it may peak his interest. He is very bright rxman

bronsuchecki
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Buyer of last resort

"ABX hasn’t come back with any answers yet on who is going to be the buyer of last resort."

The answer is simple, ABX will have to step in as principal and buy out the client's position, otherwise those clients screwed will be all over the forums complaining and that will be the end of trust in ABX. So I think your clients will be OK in the end but it shouldn't have got to this point.

Gibbo
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Gold Ounces

Swifty,

Currently the only market that is offering the Buffalo is Sydney and there are only 6 available at the time I looked. I noticed yesterday that the shelves were emptied for the products being withdrawn.

For individual ounces you won't be able to use ABX anymore from 29 July 2016. If you want to buy on the ABX now then the smallest gold units are 100 gram and 10 ounce bars.

However, by the time the GS ratio drops to something more sensible then the with the extra buying interest coming into ABX, they could well reintroduce those withdrawn products in time for your Buffalo purchases. So don't write off the ABX just yet.

David

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Gibbo
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Buyer of last resort

Bronsuchecki,

I agree with both points that the ABX should be buyer of last resort and that it shouldn't have gotten to this point.

If they do step up as buyer of last resort then they will probably offer spot which means that the premium paid for the physical evaporates, so I will understand if the client is less than pleased.

Not the best way to maintain client relations.

David

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Gibbo
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Liquidity Providers to the Rescue

I just got notified about the exiting of client positions.

It seems that ABX didn't properly notify their liquidity providers about the changes and what was required of them up to the end of the expiry date of the contracts. As a result of this, upon hearing of the ending of the contracts, the liquidity providers immediately withdrew their liquidity from the markets.

This had the effect of leaving everyone high & dry and locked into their pooled positions.

After some rushing around the ABX has brought back the liquidity providers to act as buyers of last resort, taking back bought positions from current holders.

I certainly believe that it could have been handled better, but at least there has been resolution.

Now it's time to concentrate on the remaining markets and products available and how it will now benefit investors looking for a way to buy physical precious metals.

David

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