April/May Silver Bullion Newsletter : Ownership vs. Unsecured Creditor Status

Posted by Admin on 02 May 2014


Silver Bullion Pte Ltd

Dear Subscriber

Few people consciously seek to protect their assets from systemic risks (e.g. mass bankruptcies, a currency collapse, etc...) and very few indeed invest the time and effort to understand why and whether their assets are indeed safe.

Yet it is understanding the details - those that are normally not addressed in marketing materials and are often dismissed as un-important - that make the real difference between solid wealth protection and the mere illusion of such protection.

Storing some physical bullion at home is definitely a good start, but once you start dealing with a storage counterparty, evaluating whether your arrangement actually increases or decreases your systemic risk exposure is a complex exercise. This is often made harder because few providers are transparent enough - or able - to answer key questions.

Over the years we identified 10 such key questions that - we believe - you should be aware of. In this newsletter we write about the first of these 10 key questions - Ownership vs. Unsecured Creditor Status and discuss why your legal status towards your underlying assets matters.

You might also be interested in these recent articles about The Safe House:
  • Straits Times - Singapore gets first dedicated silver vault
  • SMC Alert - Courtesy of Sovereign Man
  • Bloomberg - Silver Vault for 600 Tons Starting in Singapore on Demand

Lastly we are pleased to announce that we finished transferring 42 metric tonnes of silver - 10 armed trucks - to The Safe House (TSH). Customers can view their parcel location and pallet number from the TSH inventory statement along with your bullion parcel photos and other documentation.

We expect the bulk of existing gold to be transferred into TSH in late May after installation of additional heavy duty drawers within the class 2 gold vault is completed. All newly fulfilled bullion for storage, including gold and platinum, will now be located at TSH.

 
Storage Sytems and The Ownership vs. Unsecured Creditor Status:

Prerequisites for Ownership Status

There is a near truism in the industry which states that “If you can’t touch it you don’t own it”.

This statement is true in most cases because storage solutions which rely on generic quantity or weight counts are, by definition based on an IOU system, making the client, in a legal sense, an unsecured creditor rather than an owner.

In the industry you will often find that bullion storage are categorized in “Unbacked”, “Unallocated”, "Allocated" and in some cases “Reserved” as follows:

  • Unbacked, your position is simply a financial bet (long or short). – You are not an owner as there is nothing to physically own. Legally you are an unsecured creditor.
  • Unallocated, there is a small amount of bullion to cover everybody’s claim – You are not an owner as the small amount of bullion is on the provider balance sheet. Legally you are an unsecured creditor.
  • “Fully” Allocated, the provider tries to buy or sell bullion to match, with a delay unless they distinguish between in-stock and pre-order bullion, the buying and selling of bullion by clients so that claims are matched with physical. However even in this case you are still not an owner because your claim is still a generic ounce(s) liability against assets held on the provider's balance sheet. You are an unsecured creditor.
  • “Reserved”, only when physical bullion is present, uniquely identified and uniquely tracked (not just listed by generic oz quantity) and the bullion/goods are transferred to your name via an invoice to attest the legal title transfer would you be an actual owner under the jurisdiction in which the invoice was issued.

Keep in mind that these terms, other than "reserved" which requires documentary proof, are often used quite loosely and as this is mostly a self-regulating industry so full allocation often comes down to how transparent the storage system is.

S.T.A.R. @ The Safe House Reserved Storage @TSH - Only 1000 oz silver bars (shown above in pallet TSH P032) do not require a tamper evident parcel bag, instead the Bar Serial Code and DUX Tamper Proof Label (TPL) are used.

"Unsecured Creditor" vs. "Owner" Status and Why it Matters

From a legal point of view, investors are normally unsecured creditors because their money is recorded as a liability with their immediate counterparty which typically will become an unsecured creditor themselves as they transfer funds to other counterparties along the counterparty chain.

As the name suggest unsecured creditors are completely dependent on the solvency of their counterparties which is not a good situation if you seek to minimize risk to protect yourself from systemic risks. The typical exceptions of this rule are real estate – where you receive legal title to your property - and buying and taking home a physical good, such as bullion, yourself – in which case legal ownership was transferred via an invoice.

So if you purchase bullion for storage and do not get an invoice – the vast majority of cases - you can be pretty certain that your status is that of an unsecured creditor because you own a claim, not a physical asset. On the other hand if you receive a valid invoice you would be an owner of the bullion as evidenced by the invoice. To issue an invoice for goods the issuer must be in possession of the goods and the goods must be uniquely identifiable if they remain under custody of the seller.

So a storage invoice stating “monster box of 500 Maple Leafs” for example is essentially an IOU because it does not specify what specific box you own nor does it guarantee that bullion exists at the time of the transaction. So ultimately it is a promise. On the other hand a sealed parcel ID SB20005XXX owned by Silver Bullion Pte Ltd containing a monster box would be valid property because it is specific existing asset giving the client ownership of the parcel and relegating Silver Bullion Pte Ltd to act as a storage agent for the client owner.

An advantage to being a legal title owner is that it makes it very difficult and illegal to encumber – see encumbered bullion – your bullion. Another advantage is that your claim to the parcel survives the dissolution of your dealer. In other words if your dealer goes bankrupt you would still be the owner of the parcel and a bankruptcy court would not be able to claim it for creditors whereas, as an unsecured creditor, you would probably have lost any claims you had. Furthermore in Singapore falsifying an invoice is a criminal rather than civil matter making the humble invoice a very powerful document indeed.

However from a dealer perspective issuing storage invoices for physical parcels does not allow for shortcuts and is much more complicated and expensive compared to issuing promises and virtual quantities because:

  • An invoice dealer would need to own sizable bullion amounts as buffer as only bullion owned by the dealer and physically present can be transferred to a customer. Furthermore a distinction between bullion in-stock and pre-order would need to be made. In the case of virtual quantity dealers there are no such restrictions allowing minimal capital to be invested in the dealership.
  • Physical Parcelization is a lot of work and physical risk to the dealer and requires much more complex operations compared to a dealer that issues promises and can easily outsource operations.
  • Storing Bullion in parcels that are individually retrievable also requires at least three times more space (and more cost) compared to simply stacking bullion up a wall on a first in first out basis.
  • It does not allow for bullion leasing because the bullion is not on the dealer balance sheet.

[email protected]

We have developed the “Reserved” characteristic of S.T.A.R. to support invoicing and customer ownership from the beginning. Ownership is a bedrock characteristic of our storage program and a key to our success as customers are becoming more sophisticated and understand the value of having legal title to one’s bullion.

See 9 more reasons that make S.T.A.R. @ The Safe House unique.

 
by Gregor Gregersen
and The Safe House / Silver Bullion Team
STAR@TheSafeHouse
 
New Releases and Specials
 

Lunar 2014 Coins  - 1 oz

Gold - 1 oz Valcambi Bars - On Special

1 oz Valcambi bars are discounted until supplies last - local orders only.
 

Lunar 2014 Coins  - 1 oz

Gold 1 KG Metalor Bars - New Item

1 kg Gold Metalor bars and are now available for Storage as we had a number of request to carry these larger bars.
 

 
Bullion Availability Update
In this section we summarize our inventory status and current bullion availabilities as reported by our suppliers and industry sources:
Local & S.T.A.R. @ The Safe House Availability
  • supply Silver Maple Leafs - over 45,000 of the 2014 coins in-stock.
     
  • supply Silver American Eagles - Available for pre-orders and small quantities in stock. Premiums are considerably higher than maples.
     
  • supply Johnson Matthey 100 oz Poured Silver Bars - Availability is good 22,000 oz of these bars in-stock and more incoming.
     
  • supply .9999 Royal Canadian Mint 100 oz Silver Bars -  RCM bars supply is stable, bars on order will arrive soon.
     
  • supply Gold - Gold Maple Leaf supply is good, 10 oz bars are incoming and we have a first batch of 1 KG Metalor bars. Pre-orders can be obtained within normal delivery timelines.
  • supply Perth Mint Silver Coins and Bars - 1 KG and 100 oz bars have arrived as are some 1 KG Lunar coins
     
  • supply Perth Mint Gold Coins and Bars - 100 gram bars and 1 oz coins have just arrived.
     
  • supplyPlatinum Credit Suisse Bars are still difficult to procure. Recent mining disruptions restricting supply.

If you plan to import bullion into Singapore make sure you understand what type of bullion is classified as Singapore IPM Tax Free and what type is not, so that you are not burdened with unnecessary import taxes. See IPM Criteria & Tax Free Bullion for details.


See more products and prices at www.silverbullion.com.sg
and our storage facility at www.thesafehouse.sg.

Best Regards

The Silver Bullion Team
Silver Bullion Pte Ltd
Registration Nr: 200907537M
Floor #03-02A Certis CISCO Center II
20 Jalan Afifi, Singapore 409179
Singapore

Phone: (65) 6100-3040
Fax: (65) 6826-4022
Email: [email protected]

 

Information provided here should not be considered as advice or as an offer or enticement to buy, sell or trade. The contents of this publication, including any opinions and analysis, are strictly intended for educational use. Opinions expressed in bylined articles are those of the individual author and do not necessarily reflect the views of Silver Bullion Pte Ltd.

Silver Bullion Pte Ltd. makes no warranties, whether expressed or implied, as to the accuracy of the information provided or for eventual results obtained by using the information. In no case shall Silver Bullion Pte Ltd. be liable for direct, indirect, or incidental damages resulting from the use of the information.

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