Exchange Traded Commodity (ETC) shares are listed and trade on stock exchanges. The price of an ETC varies along with its underlying commodity. Questions about ETCs MUST specify the sponsor and structuring details. ETCs are debt instruments (notes) underwritten by a bank for the issuer or sponsor. They are derivative securities, backed by commodity collateral, unlike ETFs.
Performance of Exchange Traded Commodities are linked to
- spot commodity price: price for immediate delivery, or
- futures commodity price: a contract for delivery at a future date.
ETCs are structured differently depending on the sponsor, or exchange, e.g. 'London Stock Exchange ETCs' pp 3-9 (PDF).
ETCs target a commodity price that tracks closely in ordinary market conditions. In the event of an extreme market dislocation, the ETC sponsor might default on its obligations. ETCs are derivative securities backed by collateral, often issued by shell companies with no other assets. An ETC that is 100% backed by collateral should entail less risk.
Do not confuse commodity ETFs with ETCs. Commodity ETFs invest in and hold physical commodities directly, i.e. they are backed by underlying assets held by a trust or similar entity. In the United States, ETCs aren't registered as 1940 Act Funds, unlike ETFs.
