Gold trading game changer hits the OTC market

There are more Krugerrand coins in circulation than any other investment gold coin in the world, the Krugerrand also holds the title as the most widely held and traded bullion coin in the world. Where gold prices have historically been dictated by their set market price, Equity Express is about to launch a new offering that injects a game-changing amount of liquidity into the market, which can be traded over-the-counter. Etienne Nel of Equity Express spoke to BizNews about the exciting product, partnered with InvestGold before its launch today, Friday 26th September. We’ll be keeping an eye on this one. – LF 

LUCIENNE FERREIRA: With us on the line today we have Etienne Nel from Equity Express and he’s going to be telling us about what’s new on the ‘over the counter market’. What have you got for us Ettienne?

ETIENNE NEL: Hello Lucy. Thank you very much for having me. We are delighted with the announcement that Invest Gold are going to partner with us. We are going to be switching on the trading platform and registrations will commence effectively tomorrow, where you can trade gold coins and other coin products. Now, you’d say to me ‘well, you can already do that through various coin shops and some of the banks are offering this facility’. Then I would argue that that is, in fact not the case because what we’ve done differently to most other people is we have created the concept of being able to buy and sell, let’s call it gold coins and related products, at your own price. Investors on this platform can buy and sell gold coins and gold related Bullion products at the price that they see fit.

Rather than being quoted a price by a vendor you can offer your gold coins at a premium to the market or a discount to the ruling gold price, depending on how much of a hurry you’re in to in fact, transact that in that relevant product so we are obviously excited about it.

LUCIENNE FERREIRA: So there’s a lot more flexibility for buyers and sellers with the market. How does that work practically?

ETIENNE NEL: Lucy, practically an investor would come along and as legislation requires they’d provide the BidVault, which is the name of the trading platform, with their figure, register online, and, as per normal, prefund their buying account with money, to the extent that they wish to buy coins. Then basically, sellers would have to, similarly pre-deposit gold coins, with Invest Gold. Now, Invest Gold have got an agreement, with a company called Knox Vault that hold the coins in safe custody, so investors can rest assured that if they, in the event that they want to withdraw their coins they can do so. Or, if they just want to trade their coins, they can also do so, with the coins already in safe custody, but that is obviously a big requirement, so it gives everybody that level of comfort. Then, quite simply you can go online and transact in your coins.

LUCIENNE FERREIRA: How did the need for this come about in the market? Where did you find that teaming up with Invest Gold, from an OTC perspective? Was this something that you’ve identified as a niche?

ETIENNE NEL: To be honest, it’s actually been a bit of a ‘pet project’ of mine for a couple of years now. It’s something that you used to be able to do on the JSE, when we still transacted in shares with paper certificates because then there was this concept of physical delivery of the underlying asset, in the share certificate of the gold coin. But with the JSE going to a paperless environment that market has, largely dried up. I think there is still some trade that happens but at a fraction of what it used to be before. What’s happened in the intervening years that market has gone to coin traders. Typically, you’d need to take your coins and go to a coin shop or a coin dealer, and go to their offices, deposit your coins with them and then they will give you the prevailing gold price, less a handling fee and obviously, if you buy coins you’d pay the prevailing gold price plus an administration charge.

There’s this concept of a fixed marketing or a fixed pricing mechanism that is set by the AM and PM gold fixes. Now, I’m a big believer in a transparent, free, and efficient market. Now in my mind that is not really free. Someone is telling me what I need to pay or not pay for my gold coins. If I wish to sell them and I’m in a hurry and the prevailing price. For arguments sake, is R14.000.00 for a full Kruger, and I want R13.000.00 then I think I have every right to sell them at R13.000.00 and, similarly if I want to sell them at R15.000.00 and someone is willing to pay R15.000.00 for a full Kruger then that’s also very right.

LUCIENNE FERREIRA: So you are adding a whole new element of liquidity and what it sounds like is that it’s a game changer.

ETIENNE NEL: We’d like to think so, Lucy. At Equity Express we’ve kind of been at the cutting edge of new developments, in the capital market space and this adds a new, let’s call it a new product to our offering. Interestingly enough it falls outside the definition of a security because, effectively a coin is just that, specifically Kruger Coins, it’s legal tenders, so there’s no prohibition or limitation on actually transacting physical coins. It gets stricter if you start trading in derivatives of these things, which obviously, right now we are not doing.

LUCIENNE FERREIRA: Absolutely, so in terms of the questions that have been, raised by the FSB and OTC markets, this falls outside of the gambit of those issues.

ETIENNE NEL: Correct, you are 100 percent right. You see because Kruger Coins specifically are seen as legal tenders, so a Kruger Coin, if you wanted to, you can go and buy a television with a Kruger Coin if the shop accepts it.

LUCIENNE FERREIRA: Of course.

ETIENNE NEL: Obviously, on other Bullion products and medallions and these sort of things, collected coins and rare coins. These will be also available on the platform, which is another first because typically those things are traded also on physically having to go to a ‘shop basis’, so it’s the first online platform in Africa that allows investors to be able trade rare and collectable coins as well and physical Bullion. So you can buy, in the fullness of time, obviously we’ll be able to rollout half-a-kilo and a one kilogram silver bars and those sort of things, so it’s hugely exciting to the extent that investors want something else in their portfolio. You see lots of, let’s call them ‘derivative gold’ and ‘Bullion related products’, so there’s the Palladium and Platinum and a Gold ETF, which are in essence a derivative. You can never physically own the physical commodity at the end of the line. Whereas, with this platform you have a full, secondary market offering, you’ve got Equity Express systems and stability behind it, then obviously, Invest Gold’s expertise around the Bullion trading with Knox Vault doing the safe custody for us.

LUCIENNE FERREIRA: It sounds like an excellent model. When did you say that it was launching?

ETIENNE NEL: The launching is tomorrow, with registrations, and trading (going live) should be within the week.

LUCIENNE FERREIRA: Have you found that your customers are putting their interest towards this? Are you expecting it to start with a big bang, and how is it being received?

ETIENNE NEL: Well, truth be told, this is the first, let’s call it ‘press release’ that we’re doing to this effect, so you’ve got the inside track on this.

LUCIENNE FERREIRA: We’ve got the exclusive.

ETIENNE NEL: Yes, so we haven’t really gone to market with it but that process we will now commence, in all earnest.

LUCIENNE FERREIRA: Excellent. I can’t wait to see what it does because, for all intents and purposes it really does offer a new avenue that has full liquidity attached to it and, like you say that brings a whole offering to the market that didn’t exist.

ETIENNE NEL: Correct. I’ve spoken to people who’ve expressed frustration with…they struggle to get their coins out. Now some people actually do want to hold onto the physical coin. There is a nice lustre to holding onto a couple of gold coins in your hands, whether or not it’s practical. That’s a different story altogether but yes, and we obviously offer investors that option, as well as then the full custody, which needless to say, is something of vital importance because we are talking very high value items here.

LUCIENNE FERREIRA: Etienne, I can’t wait to see what it does. Thank you so much for giving us all the details and the lowdown and we’ll be touching in again with you, to find out how it has been received and what the trade is looking like on it and where people are finding that ‘arms’ length’ transaction value in the Bullion. I’m really, excited to see what it does.

ETIENNE NEL: Yes, we are also quite keen to see how the market takes it. I suspect, initially trade will be slightly muted but in the fullness of time, I think investors will see the full potential of this new offering.

LUCIENNE FERREIRA: Absolutely, they’ll be able to pick up on a gap. Well, that was ETIENNE Nel from Equity Express. Thank you so much for your time and we’ll get back to you very shortly with the pickup of this new, trade and commodity. Thank you very much.

ETIENNE NEL: Thank you, Lucy.

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