Abstract:
A system and method for providing a tradable (e.g., exchange-listed) instrument by securitizing a commodity using a commodity trust or other special-purpose vehicle that is established to hold one or more physical commodities and to issue commodity trust shares and/or receipts corresponding to the value of the physical commodity held by the Trust. The commodity trust shares may represent a proportional interest in the Trust and/or the physical commodity held by the trust, e.g., precious metals such as gold, or base metals such as copper. The Trust may include one or more Trust accounts to receive and store the physical commodity deposited with the Trust. The shares or receipts of the trust can be listed, quoted, and traded on a trading system, e.g., an Electronics Communication Network (ECN), and may be traded as Exchange Traded Fund (ETF) shares on a securities exchange.

Description:
CROSS-REFERENCE TO RELATED APPLICATIONS 
       [0001]    This application claims benefit under 35 U.S.C. §120 to U.S. Non-Provisional Patent Application 10/680,589, entitled “Systems and Method for Securitizing a Commodity”, filed Oct. 6, 2003, which in turn claims benefit under 35 U.S.C. §119(e) to U.S. Provisional Patent Application 60/415,764, entitled “Method and System for Equitizing a Commodity,” filed Oct. 4, 2002, both applications being incorporated herein by reference in their entirety. 
     
    
     BACKGROUND 
       [0002]    This disclosure relates to exchange-traded equity securities, and particularly to a method and system for securitizing a physical commodity. 
         [0003]    There are many barriers to owning certain commodities that have prevented investors from investing in the commodities, which, in turn, can lead to an undervaluing of the commodities. Gold present a classic example of a commodity that has historically been undervalued because, in part, to the difficulty in storing and transporting physical gold. Currently, a common method for sophisticated investors, e.g., institutional investors and/or their clients, to invest in gold is through the shares of gold producers or in structured notes, e.g., gold linked derivatives, issued by money center financial institutions. For individual retail investors, however, the historical barriers have been even more daunting. For example, a common practice for the individual investor wishing to own gold is to buy gold coins or jewelry. The downside to this approach is that the investor must then find a way to store and secure the gold that they own, which can be costly. Moreover, such an investor will likely have to take out insurance in case the gold is stolen or lost, which adds further costs to owning gold for the individual investor. 
         [0004]    Thus, liquidity in the gold market has been restricted, leading to under valuation, because of the difficulty and costs associated with transporting and storing the physical gold. While some may be willing to take on the burden and risk of owning the physical metal, many mainstream investors consider investment in physical gold to be prohibitive. Rather, many such investors prefer to invest in the shares of generic, highly liquid gold mining companies. 
         [0005]    Although gold mining shares appeal to those seeking their considerable leverage to changes in the gold price, they incorporate business risks that clash with the fundamentally conservative and risk adverse reasoning that might attract a wider audience to gold. This is because the business of mining gold can be subject to various uncertainties, including geological, labor, regulatory and environmental, financial, and political risks. Conversely, ownership of the physical metal does not exhibit such risks. The same cannot be said for the gold linked structured notes, or derivatives, issued by financial institutions such as money center banks or investment houses. These instruments are backed not by gold but by the credit of the issuing institution. They are often easy to buy and next to impossible to sell. 
         [0006]    Accordingly, there is no existing mechanism that facilitates trading in gold, or certain other commodities, in such a way as to overcome the historical barriers that have led to under valuation. 
       SUMMARY 
       [0007]    This disclosure describes systems and methods for securitizing a commodity. In one embodiment, a commodity trust or other special-purpose vehicle (hereafter collectively referred to as a “Trust”) that is established to hold a particular commodity and to issue commodity shares and/or receipts corresponding to the value of the commodity held by the Trust. The commodity shares may represent a proportional interest in the Trust and/or the commodity held by the trust. The Trust may include one or more Trust accounts to receive and store the commodity deposited with the Trust. 
         [0008]    The Trust can be administered by a “Trustee” (i.e., a trustee, administrator, issuing agent, or the like) that among other things, receives and stores the commodity in the Trust account(s) for and on behalf of participants of the Trust (i.e., authorized depositors), issues commodity shares to each participant corresponding to the value of the commodity being stored on their behalf and administers the Trust on a day-to-day basis by, for example, keeping record of Trust expenses and periodically determining the net asset value of the commodity shares. Holders of the commodity shares may redeem them to receive actual units of the commodity stored in the Trust account. 
         [0009]    According to one embodiment, the Trustee may appoint one or more custodians or sub-custodians to maintain and administer the Trust account(s) for and on behalf of the Trustee. Such a custodian or sub-custodian may be a recognized and/or authorized depository for the particular commodity in question. Alternatively, the custodians/sub-custodians may be appointed by the sponsor of the Trust, the issuer of the commodity shares and/or any other entity recognized as the offeror or registrant of the commodity shares. 
         [0010]    The commodity shares can be traded on a major securities exchange such as the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the National Association of Securities Dealers Automatic Quotation System (NASDAQ), or any other exchange or Electronic Communication Network (ECN), thereby creating a robust secondary market for the commodity shares. 
         [0011]    Various embodiments of this disclosure provide a more convenient and cost-effective method for investing in a commodity relative to traditional methods, as well as encourage greater investor participation in the market for commodities. In addition, certain barriers-to-entry traditionally associated with investing in commodities are overcome, and investors may avoid certain costs traditionally associated with purchasing, storing and insuring a commodity. In addition, an efficient means to implement various investment strategies involving commodities are described herein, and investors are provided with convenient access to the market for a particular commodity via an exchange-traded security which may have, for example, performance generally corresponding to the price of a particular commodity. 
         [0012]    These and other features, aspects, and embodiments are described below in the section entitled “Detailed Description.” 
     
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
         [0013]    Features, aspects, and details of the various embodiments are described in conjunction with the attached drawings, in which: 
           [0014]      FIG. 1  is a diagram illustrating a gold trust in accordance with one embodiment; 
           [0015]      FIG. 2  is a diagram illustrating a gold trust system comprising a custodian in accordance with another embodiment; 
           [0016]      FIG. 3  is a flow chart illustrating a method for creating shares within the system of  FIG. 2  from the perspective of a participant in accordance with one embodiment; 
           [0017]      FIG. 4  is a flow chart illustrating a method for creating shares within the system of  FIG. 2  from the perspective of a Trustee in accordance with one embodiment; 
           [0018]      FIG. 5  is a flow chart illustrating a method for creating shares within the system of  FIG. 2  from the perspective of a custodian in accordance with one embodiment; 
           [0019]      FIG. 6  is a flow chart illustrating a method for redeeming shares within the system of  FIG. 2  from the perspective of a participant in accordance with one embodiment; 
           [0020]      FIG. 7  is a flow chart illustrating a method for redeeming shares within the system of  FIG. 2  from the perspective of a Trustee in accordance with one embodiment; 
           [0021]      FIG. 8  is a flow chart illustrating a method for redeeming shares within the system of  FIG. 2  from the perspective of a custodian in accordance with one embodiment; 
           [0022]      FIG. 9  is a time line illustrating the steps performed by a Trustee leading up to a trade date with respect to a creation or redemption transaction in accordance with one embodiment; and 
           [0023]      FIG. 10  is a time line illustrating the steps performed by a Trustee on a settlement date with respect to a creation or redemption transaction in accordance with one embodiment. 
       
    
    
     DETAILED DESCRIPTION 
       [0024]    While some of the embodiments below are described in relation to the securitization of gold, it will be understood that the systems and methods described herein can apply equally to other types of commodities. Other commodities can include, for example, silver, platinum, palladium, ferrous and base metals (e.g., “base metals” refers to industrial non-ferrous metals excluding precious metals, but including copper, lead, nickel and zinc), oil and gas products, energy and industrial minerals, foreign currencies, and soft commodities such as sugar or grains, to name just a few. Thus, the following descriptions should not be seen to limit the system and methods described herein to any particular type of commodity. 
         [0025]      FIG. 1  illustrates a gold Trust  100  according to an embodiment. Particularly, gold Trust  100  comprises a Trustee  110 , a gold Trust account  115 , a number (N) of gold units  120 , and a number of equity shares  130  representing an interest in gold trust  100 . According to one embodiment, Trustee  110  serves as both the administrator of the gold Trust  100  and custodian of the gold Trust account  115 . According to another embodiment, Trustee serves as the administrator of the gold Trust  100  while a separate entity is appointed act as custodian for the gold Trust accounts. Assets held by the gold Trust  100  include Gold units  120 , which can include gold bullion such as Commodity Exchange, Inc. (COMEX) gold bars and/or London Good Delivery gold bars that are individually identified and tracked, and/or gold receipts  122  representing an interest in an unallocated amount of physical gold. According to yet another embodiment, gold Trust  100  may also hold an amount of cash from fees collected, the proceeds of cash market transactions and the like. Cash held in gold Trust account  100  can, in certain embodiments, be invested, e.g., in time deposits, overnight accounts, money market, funds, etc. Gold Trust  100  may also accrue interest and/or dividends and Trustee  110  may remit dividends and/or other distributions to participants in gold Trust  100 . 
         [0026]    Equity shares  130  can be issued by Trustee  110  for a value corresponding to an amount of gold units  120  held by the gold Trust in the gold Trust account  115 . For example, one equity share  130  can correspond to one gold unit  120 , to a fractional interest in one gold unit, or to a fractional interest in a unit weight of gold as needed to make the equity shares affordable and attractive to potential investors. In one embodiment, one equity share  130  corresponds to 1/10 th  of a fine troy ounce of gold bullion, thereby making the cost of each equity share  130  approximately equal to 1/10 th  of the spot price of an ounce of gold. 
         [0027]    In operation, participants in gold Trust  100  can obtain new shares  130  of gold Trust  100  by depositing physical gold units  120  into gold Trust account  115  in exchange for a number of shares  130  of corresponding value. Participants can also redeem shares  130  of the gold Trust  100  by transferring its shares  130  to Trustee  110  and receiving a corresponding amount of gold units  120  in return. It should also be noted that in certain embodiments, gold receipts representing unallocated physical gold can also be deposited and/or redeemed, either to make up for the difference between an amount of gold units  120  being deposited or returned and the value of the shares  130  being created or redeemed as explained below, or in place of the actual deposit and transfer of physical gold units  120 . 
         [0028]    The participants may include gold investors, gold manufactures, gold distributors, and the like. However, because gold is relatively expensive to move and store, it is not cost-effective to do so in small amounts. Therefore, according to one embodiment, only certain participants are authorized to create and redeem shares  130  of gold Trust  100 . According to one embodiment, an authorized participant must be a registered broker-dealer or other securities market participant who is also a participant in the Depository Trust Company (DTC), which acts as the security depository for shares  130 . In another embodiment, however, anyone can create shares  130  as long as they give Trustee  110  instructions as to which, e.g., DTC account is to be used. 
         [0029]    Furthermore, a limit can be imposed on the number of shares that can be redeemed and/or created at a given time. For example, in one embodiment, the gold Trust will only create and/or redeem shares  130  in baskets of 100,000 shares at a time. An authorized participant can create baskets of shares and subsequently make the shares  130  available in smaller amounts to regular investors in the secondary market. Alternatively, the Trustee  110  may limit requests to create and/or redeem shares  130  to only those that are at or above a specified minimum value. For example, in one embodiment, the Trustee  110  will not create shares  130  for a request that is below a minimum value of approximately $400,000. 
         [0030]    In another embodiment, anyone can redeem shares as long as they redeem through and authorized participant, e.g., a participant with a DTC account. In such an embodiment, a minimum number of shares  130  to be redeemed can still apply, but this minimum may be set at a lower threshold in order to appeal, for example, to retail customers. In on embodiment, for example, a minimum threshold on the range of 40-80 shares  130  can be used. A transaction fee may still apply as with other redemption transactions described herein. 
         [0031]    In certain embodiments, gold Trust account  115  can also include a certain amount of gold receipts  122 . Gold receipts  122  may be used to represent amounts of unallocated gold that can then be used in conjunction with the creation and redemption of shares  130 . For example, upon creation or redemption of shares  130  a relatively small amount of gold receipts, representing unallocated gold  122 , can be deposited with, or withdrawn from, gold Trust account  115 . The use of the gold receipts can be required due to the fact that the gold bullion delivered to, or withdrawn from, gold Trust account  115  can vary slightly from unit to unit. Thus, it is not always possible to deliver the exact amount of gold bullion being created or redeemed. 
         [0032]    For example, “COMEX deliverable” bars are of a size and weight standard to the COMEX gold futures market—approximately 100 troy ounces per bar, at a minimum of 0.995 fineness. Thus, COMEX deliverable gold bars typically vary in both weight and gold fineness. A “100 troy ounce” COMEX deliverable bar can actually vary from 95 ounces to 105 ounces, and will also vary from 0.9950 fineness of gold to 0.9999 fineness. Because of, this variation, each bar&#39;s actual gold ounces, i.e., weight of pure gold, is based on the concept of “net fineness,” or ounces multiplied by fineness. The following two examples demonstrate the concept of “net fineness:” 
         [0033]    Example one: a COMEX deliverable gold bar is 95 ounces and 0.9950 fineness. Calculate actual gold ounces in this bar based on the concept of net fineness:  95  ounces.times.0.9950 fineness=94.525 actual ounces. 
         [0034]    Example Two: a COMEX deliverable gold bar is 104 ounces and 0.9999 fineness. Calculate actual gold ounces in this bar: 104 ounces.times.0.9999 fineness=103.9896 actual ounces. 
         [0035]    Similarly, London Gold Delivery standard gold bars are 350-430 fine troy ounces at a 0.995 minimum fineness. Thus, upon creation, a participant is not necessarily able to deliver the exact amount of ounces in gold bar form due to the variation in weight and fineness of gold bars. Likewise, Trustee  110  is not necessarily able to deliver an exact amount of gold ounces in gold bar form to a participant upon redemption. The amount of gold delivered for a creation or redemption can be calculated, however, according to net fineness, with any difference between the creation and redemption ounces required and the actual gold delivered in bar form paid in gold receipts  122  for unallocated gold. 
         [0036]    Gold receipts  122  can be traded in small increments, down to 1/20th of an ounce, for example. In one embodiment, gold bars  120  delivered for a creation comprise ounces of gold up to but not over the amount required, with the shortfall made up by the delivery of gold receipts  122  from a participant. Upon redemption, Trustee  110  can deliver to a participant up to but not over the amount of gold ounces required in bar form, with the shortfall made up by Trustee  110  delivering gold receipts  122  to the participant. In another embodiment, cash can be provided instead of gold receipts  122  to make up the difference between the creation and redemption ounces required and the actual gold delivered to or by the Trust  100 . 
         [0037]    It should be noted that the unallocated gold can be maintained by a bank or a bullion dealer as part of a general pool of gold. Trading in unallocated gold receipts often occurs among gold traders. Depending on the embodiment, trades in unallocated gold receipts can take place by paper transfers between unallocated gold accounts. For example, in one embodiment, trades can be cleared through book entry transfers in or out of unallocated gold accounts at one or more clearing firms. The clearing firms can then clear their net trades with one another through physical gold bullion for unallocated gold on demand. 
         [0038]    Thus, in one embodiment, when Trustee  110  receives gold receipts, individual gold units  120  are not assigned to gold trust  115 . Similarly, when Trustee  110  delivers gold receipts, no corresponding gold units  120  are delivered; however, depending on the embodiment, unallocated gold  122  can be transferable to allocated gold, i.e., to gold units  120  in gold trust  115 , on demand. 
         [0039]    According to one embodiment, Trustee  110  is not the custodian of gold Trust account  115 . Instead, custody of gold Trust account  115  may be delegated to one or more custodians and sub-custodians who actually receive and store the gold units  120  for Trustee  110 . Trustee  110  may appoint such a custodian/sub-custodian if, for example, Trustee  110  does not have a significant gold storage capacity or Trustee  110  is not a qualified depository for gold units  120 . Moreover, at the direction of Trustee  110 , the custodian/sub-custodian can take delivery of and distribute gold  120  directly from/to the participants. Detailed inventory of the gold Trust account  115 , including the net fineness of each bar held in the gold Trust account  115 , can be provided periodically, or non-periodically to Trustee  110  from the custodian/sub-custodian. For example, the detailed inventory may be provided nightly, weekly, etc. If Trustee does have some capacity to receive and store gold, custody of the gold can be shared among Trustee  110  and one or more custodians and sub-custodians. For purposes of this application, custodian and sub-custodian shall hereafter be referred to collectively as “Custodian.” 
         [0040]      FIG. 2  is a diagram of a gold trust system  200  including a Custodian  206  in accordance with one embodiment. In addition to Custodian  206 , gold trust system  200  comprises Trustee  202 , participant  204  and gold Trust  203 . According to one embodiment, participant  204  is a registered broker-dealer or other securities market participant who is also a participant in the DTC  208 . After Trustee  202  has issued a basket of shares to participant  204 , the shares can be made available to other investors  210  via a securities exchange. 
         [0041]    In general, the process of creating gold shares  130  may be as follows according to one embodiment: Participant  204  sends a creation order to Trustee  202 , which may include a request to create a specified number of shares  130  or to create a number of shares corresponding to a specified amount of gold. Trustee  202  may respond to the creation order with an acknowledgement, which acknowledgement may include instructions to the participant  204  on how to deliver the gold units  120  to the gold Trust account  115  and in what amounts. Trustee  202  may also notify the Custodian  206  of the pending delivery of gold units  120  to gold Trust account  115 . Custodian  206  notifies Trustee  202  when the required amount of gold units  120  have been deposited into the gold Trust account  115  by participant  204 . Trustee  202  then instructs DTC  208  to create and release a corresponding number of shares  130  to participant  204 . 
         [0042]      FIG. 3  is a flow chart depicting an exemplary process for creating shares  130  from the viewpoint of participant  204  according to one embodiment. In step  302 , participant  204  sends a creation order to Trustee  202 . The creation order may indicate the amount of shares requested, the number of baskets of shares requested and/or the amount of gold units  120  to be deposited. 
         [0043]    It should be noted that there often will be costs associated with maintaining Trust  203 . Thus, the actual value of a gold share  130  can be equal to the value of the associated amount of gold units  120  minus an allocated portion of any costs associated with maintaining Trust  203  and/or with the creation or redemption of shares  130 . 
         [0044]    In step  304 , participant  204  may receive a notice from Trustee  202  confirming receipt of the creation order. 
         [0045]    In step  306 , participant  204  may initiate a purchase of gold sufficient to cover the requested shares  130 . For example, if participant  204  has requested the creation of one basket of shares  130  corresponding to 10,000 ounces of gold, then participant  204  may initiate the purchase of 10,000 ounces of gold in step  306 . In step  308 , participant  204  can settle the gold purchase and deliver the purchased gold to the gold Trust account  115  in step  310 . Participant  204  may also tender cash or gold receipts  122  to the gold Trust account  115  to make up for any shortfall between the actual amount of gold delivered in step  310  and the amount required to cover the requested shares  130 . In exchange for the delivered gold, and gold receipts or cash, as the case may be, participant  204  receives gold shares  130  in step  312 . 
         [0046]    Participant  204  can purchase gold in various ways. For example, participant  204  can purchase futures and convert the gold futures into gold units  120  in what is conventionally referred to as an “Exchange For Physical” (EFP) transaction. In such transactions, participant  204  often maintains a custodial account with at least one of the existing gold depositories for the COMEX, e.g., HSBC, ScotiaMocatta, and Brinks Furthermore, assuming that the gold Trust account  115  is also held by one of the depositories (i.e., the Custodian is also a COMEX depository) participant  204  can request that the COMEX gold depository transfer gold from the participant&#39;s depository account to gold Trust account  115 . 
         [0047]    Currently, the COMEX depositories hold gold accounts for broker/dealers that buy and sell gold bullion. These depositories do not charge for a depository-to-depository transfer of gold. Because participant  204  may be required to pay all costs associated with delivery of gold into and out of the gold Trust account  115 , delivery of gold via EFP transactions on the COMEX can be relatively cost efficient. Purchasing gold via EFP transactions on the COMEX also ensures that the gold is at least of a minimum required quality for Trust  203 . The same is true when LBMA gold is used. Clearing time of gold from a COMEX or LBMA depository to the gold Trust account  115  can be one day, assuming Custodian  206  is a also a depository bank of the COMEX or LBMA, as the case may be. 
         [0048]    Alternatively, participant  204  may purchase gold units  120  in a cash market transaction by simply buying the required amount of gold units  120  from a bullion dealer on the open market, or from the Custodian  206 . The bullion dealer can deliver the purchased gold units  120  to the gold Trust account  115 . In such a cash market transaction, the gold may also be weighed and assayed for standard weight and fineness. Because participant  204  may be required to pay all costs associated with weighing, assaying and delivering the gold into and out of the gold Trust account  115 , creation of shares through a cash market transaction has potentially high costs for participant  204 . 
         [0049]      FIG. 4  is a diagram illustrating an exemplary method for creating shares  130  from the perspective of Trustee  202  in accordance with one embodiment. In step  402 , Trustee receives a creation order from participant  204 . In step  204 , Trustee  202  may generate and send an acknowledgement to participant  204  confirming receipt of the creation order. The acknowledgement may include instructions on how to deliver the gold to Trust account  115 . 
         [0050]    Trustee  202  may send a notice of pending gold delivery to Custodian  206 , which notice may include, for example, an amount of gold units  120  to be delivered and an identity of participant  204 . In step  408 , Trustee  202  may receive a notice from Custodian  206  confirming receipt of the notice of pending gold delivery. 
         [0051]    In step  410 , Trustee  202  may receive confirmation from Custodian  206  that gold units  120  have been deposited in Trust account  115 . In a step  411 , Trustee may also receive payment of any required fees, e.g., transactions fees to cover costs and expenses of the Trust  203 , which fees may be paid by the participant  204  or from the assets held in Trust account  115 , for example. In a step  412 , Trustee may cause an amount of shares  130  corresponding to the amount of gold deposited to be created and released to participant  204 . In one embodiment, the shares are created and released to participant  204  through DTC  208 . In an alternative embodiment, Custodian  206  may initiate the release of shares  130  instead of Trustee  202 . 
         [0052]      FIG. 5  is a flow chart illustrating an exemplary method for creation of shares  130  from the perspective of a Custodian  206  in accordance with one embodiment. In step  502 , Custodian  206  may receive a notice of pending gold delivery from Trustee  202 , which notice may include, for example, an amount of gold units  120  to be delivered and an identity of participant  204 . In step  504 , Custodian  504  may send an acknowledgement to Trustee  202  confirming receipt of the notice of pending gold delivery. 
         [0053]    In step  506 , Custodian  206  receives the physical gold and, in step  508 , may send a notice to Trustee  202  confirming that the gold was received in gold Trust account  115  in the appropriate amounts. 
         [0054]    Custodian  206  stores the gold in gold Trust account  115  in step  510  and administers the gold Trust account  115  in a step  512 . Among other things, Custodian  206  may periodically generate and issue reports to Trustee  202  indicating the amount and quality of gold held in gold Trust account  115  and showing activity in the account over a specified period. 
         [0055]    In general, the process of redeeming gold shares  130  may be as follows according to an embodiment: Participant  204  sends a redemption order to Trustee  202 . Trustee  202  may instruct participant  204  to tender the shares to Trustee&#39;s DTC account. Trustee  202  confirms that the shares have been transferred into the Trustee&#39;s DTC account. Thereafter, Trustee  202  tenders a corresponding amount of gold to participant  204  by, for example, instructing Custodian  206  to transfer gold in Trust account  115  to an account associated with participant  204  and receiving confirmation from Custodian  206  that the transfer is complete. 
         [0056]      FIG. 6  is a flow chart illustrating an exemplary method for redeeming shares  130  from the perspective of participant  204  in accordance with one embodiment. In step  602 , participant  204  may send a redemption order to Trustee  202 . The redemption order may indicate the number of shares  130 , or baskets of shares, being redeemed. 
         [0057]    In step  604 , participant  204  may receive a notice from Trustee  202  confirming receipt of the redemption order. In step  606 , participant  204  delivers the shares being redeemed by, for example, transferring the shares from its DTC account to the Trustee&#39;s DTC account. In step  610 , participant  204  receives an amount of gold units  120  corresponding to the number of shares  130  being redeemed. A certain amount of cash or gold receipts  122  may also be delivered, or transferred to an account associated with participant  204  to make up for any difference between the actual amount of gold units delivered in step  610  and the amount of gold required to cover the redeemed shares. Alternatively, if the amount of gold delivered exceeds the requisite amount based on the redeemed shares, then participant  204  can be required to deliver a certain amount of cash or gold receipts  122  to account for the excess. 
         [0058]      FIG. 7  is a flow chart illustrating an exemplary process for redeeming gold shares  130  from the perspective of Trustee  202  according to one embodiment. In step  702 , Trustee  202  receives a redemption order from participant  204  and sends an acknowledgement in step  704  confirming receipt of the same. The redemption order may indicate the amount of gold shares being redeemed and the identity of participant  204 . In step  706 , Trustee  202  may send a notice of impending release to Custodian  206 . The notice of impending release may including provisional instructions directing the Custodian  206  to release and transfer a specified amount of gold units  120  to an account associated with participant  204 . In step  708 , Trustee  202  may receive a notice from Custodian  206  confirming receipt of the notice of impending release. 
         [0059]    In step  710 , Trustee  202  receives the shares  130  being redeemed from participant  204 . For example, according to one embodiment, the shares are delivered via DTC  208  and Trustee  202  receives a notice from its DTC agent confirming receipt of the shares. In a step  711 , Trustee  202  may also receive payment of any required fees, e.g., transaction fees to cover costs and expenses of the Trust incurred in connection with the redemption order, which fees may be paid by the participant  204  or from the assets held in Trust account  115 , for example. In step  712 , Trustee  202  delivers a corresponding amount gold to participant  204  by, for example, sending release instructions to the Custodian  206  directing Custodian  206  to release and deliver the gold to an account associated with the participant  204 , i.e., directing Custodian  206  to execute the provisional instructions included in the earlier notice of impending release. In a step  714 , Trustee  202  may receive a notice from Custodian  206  confirming receipt of the release instructions. In step  716 , Trustee  202  may receive confirmation from Custodian  206  that the gold units  120  where delivered to the participant  204 . 
         [0060]      FIG. 8  is a flow chart illustrating an exemplary method for redeeming shares  130  from the perspective of Custodian  206  in accordance with one embodiment. In step  802 , Custodian  206  may receive a notice of impending release from Trustee  202 , which notice may include provisional instructions directing the Custodian  206  to release and deliver a specified amount of gold units  120  to an account associated with an identified participant. In step  804 , Custodian  206  may send an acknowledgement to Trustee  202  confirming receipt of the notice of impending release instructions. In step  806 , Custodian  206  may receive release instructions from Trustee  202  directing Custodian  206  to release and deliver a specified amount of gold units  120  to an account associated with an identified participant, i.e., directing Custodian  206  to execute the provisional release instructions included in the earlier notice. In a step  808 , Custodian  206  may send a notice to Trustee  202  confirming receipt of the release instructions and, in step  810 , Custodian  206  delivers a specified amount of gold units  120  to an account associated with the participant  204 . In step  812 , Custodian  206  may send notice to Trustee  202  confirming that the delivery is complete. 
         [0061]    According to an embodiment, gold Trust account  115  may comprise an allocated gold Trust account and an unallocated gold Trust account. An allocated gold Trust account is a gold account maintained in the name of the account holder (e.g., the Trustee  202 ) in which gold is received and held on an “allocated basis” for the account holder, i.e., the Trustee  202  has title to specific gold units  120  (e.g., gold bars or coins) held in the account. Each of gold units  120  held in the allocated gold Trust account are individually identified by any or all of the following: serial number, refiner, assay and gross and fine weight. An unallocated gold Trust account is a gold account maintained in the name of the account holder (e.g., the Trustee  202 ) in which gold is received and held on a “unallocated basis” for the account holder, i.e., the Trustee  202  has no interest in specific gold units  120  held in the account. Instead, the account holder is entitled to an unsegmented fine weight amount of the Custodian&#39;s  206  general inventory of gold (perhaps of a particular type or fineness) standing to the credit of the Trust. 
         [0062]    According to an embodiment, all transfers of gold into and out of Trust  203  in connection with the creation and redemption of shares may be done through credits and debits to the unallocated gold Trust account as follows: Upon creation of shares  130 , gold may be transferred into Trust  203  by crediting a fine weight amount of gold deposited by the participant  204  to the unallocated gold Trust account. Thereafter, the Custodian  206  transfers the deposited amount of gold from the unallocated gold Trust account to the allocated gold Trust account by transferring specific gold units  120  held in Custodian&#39;s general inventory into the allocated gold Trust account corresponding to the fine weight amount of gold deposited in the unallocated gold Trust account (to the extent that the deposited fine weight amount can be represented by whole gold units  120 ). Because the deposited gold amount is allocated in multiples of whole gold units only, the amount of gold allocated from the unallocated gold Trust account to the allocated gold Trust account may be less than the total fine weight amount deposited by the participant. The balance may continue to be held in the unallocated gold Trust account. 
         [0063]    The process of transferring gold out of Trust  203  in connection with a redemption of shares may follow the same general procedure described above in reference to creation of shares, only in reverse. 
         [0064]    It should be noted that shares  130  can represent an equity interest in trust  115 . Thus, each share would represent a proportionate interest in trust  115  and the value of each share  130  should track the proportionate value of trust  115 . Alternative, however, shares  130  can represent some other form of redeemable “marker” that represents a proportionate interest in trust  115 . For example, each share  130  can actually be a debt instrument or a hybrid equity/debt instrument. In other words, participant  204  can be seen as loaning a certain amount of gold units  120  to trust  115 . 
         [0065]    In return for the gold units  120  loaned to trust  115 , Trustee  202  can cause a certain amount of notes  130  to be delivered to participant  204 . Each note can, for example, represent one ounce of gold. Notes  130  can still be created in baskets, e.g., of 100,000 notes, and the value of each note  130  can still be approximately equal to the proportionate value of trust  115 . Thus, the inventive concepts described here in, and specifically the term “share(s)” should be seen as covering any type of exchange-traded security. 
         [0066]    The creation process would then involve creating notes that can still be traded on a secondary market and redeemed for the associated amount of gold units  120 . Thus, it will be understood that the systems and methods described herein are not dependant on whether shares  130  represent equity or debt instruments. 
         [0067]    It should be noted that gold receipts may actually be the redeemable marker, e.g., in embodiments where gold receipts are created and redeemed as opposed to the physical gold as described above. 
         [0068]    It should also be noted that the role of custodian can also be performed by Trustee  202 . In other words, if Trustee  202  has the capability, then Trustee  202  can receive, store and deliver gold as required. 
         [0069]    In one embodiment, the minimum amount of purchase or redemption for a primary market, i.e., the market consisting of participants  204 , correlates with the gold futures market, to facilitate purchase of shares and improve liquidity, transparency, and hedging alternatives. No minimum purchase or redemption amounts, however, need apply to the secondary market, except for any existing exchange minimums. 
         [0070]    Trust  100  can thus provide benefits to both the institutional and retail markets by providing a liquid security the performance of which correlates with the performance of gold bullion, or some other commodity. In addition, significant hedging of trust shares  130  with, e.g., the gold futures market, such as on the COMEX, can also be facilitated. As is often the case with ETFs, liquidity and hedging alternatives work to keep spreads tight between the bid and ask on trust shares  130 , which can also be beneficial. 
         [0071]    In another embodiment, participant may elect to deliver or receive cash instead of delivering or receiving gold units  120  to/from the Trust  203 . In the case of a creation order, participant may elect to deliver cash to the trust corresponding to the amount of gold that is required to create the requested shares  130 . Thereafter, Trustee  202  may use the cash to buy the required gold on the spot market. The purchased gold is then deposited in the Trust account  115  and the shares  130  are delivered to the participant as described above in reference to the process for creating shares  130 . In the case of a redemption order, the participant may elect to receive cash value for the gold corresponding to the tendered shares  130 . In that event, Trustee may withdraw the gold from the Trust account  115 , sell the gold on the open market and give the proceeds to participant  204 . In each case, if Trustee  202  is not a qualified broker/dealer for gold, then Trustee  202  may engage a qualified broker/dealer to perform the buy/sell transactions described herein. 
         [0072]      FIG. 9  is a timeline illustrating when certain actions are taken by a Trustee  202  in relation to a trade date for a given trade in accordance with on example embodiment of the systems and methods described herein. Thus, as can be seen, the day before the trade (Trade date−1), Trustee  202  can execute previous creation and/or redemption orders and set up an account in a clearing system. The clearing system can be the internal system used by Trustee  202  to clear transactions. On the same day, Trustee  202  can update the Net Asset Value (NAV) of trust  115  based on the executed creation and/or redemption orders. 
         [0073]    On the trade date, Trustee  202  can receive new creation and/or redemption orders from a participant  204 . In one embodiment, all such orders are received before 1:30 pm eastern time, or before the close of the gold market. Trustee  202  can then price the new creation and/or redemption orders based on the NAV determined from the previous day. Trustee  202  can then book the new creation and/or redemption orders and cause the outstanding shares  130  to be correspondingly increased. Trustee  202  can then send a pending delivery notice to a Custodian  206 , as described above. The pending delivery notice should include, e.g., the number of ounces of gold to be delivered. Trustee  202  can then receive a confirmation form the Custodian. 
         [0074]      FIG. 10  is a timeline illustrating the action that can be taken by Trustee  20  on a settlement date for a given transaction in accordance with one example embodiment of the systems and methods described herein. Thus, on the settlement date, Trustee  202  can confirm all pending deliveries to or form Custodian  206 . Trustee  202  can then cause the execution of all pending deliveries. For example, all pending deliveries can be executed on the trade date plus one day (trade date+1). In certain embodiments, execution on the day after the trade date can require that the creation and/or redemption orders are received before a certain cut-off time on the trade date. Trustee  202  can then receive confirmation that the requisite gold was delivered to or from Custodian  206 . The confirmation can include a detailed inventory of the gold units  120  delivered. 
         [0075]    The shares  130  created can be delivered from or to DTC  208  and Trustee  202  can confirm the settlement of all share transactions. All gold and gold receipt positions can then be reconciled for the day. 
         [0076]    In certain embodiments the NAV, mentioned above, for trust  115  can be determined by Trustee  202  at the close of trading on the New York Stock Exchange (NYSE) on each business day. The NAV can represent the aggregate value of the assets of trust  115  less its liabilities, which include accrued expenses briefly mentioned and described above. In determining NAV, Trustee  202  can, depending on the embodiment, value gold units  120  held in trust  115  based on the price of an ounce of gold as fixed by the existing five fixing members of the London Bullion Market Association (LBMA), e.g., at 3:00 PM London, England time (London PM Fix). Trustee  202  can also determine the NAV per Share. 
         [0077]    The ordinary operating expenses associated with trust  115  can be accrued daily and can be reflected in the NAV of trust  115 . In order to pay the Trust&#39;s expenses, Trustee  202  can sell gold  120  held by in trust  115  on an as needed basis. Expenses can include fees and expenses of Trustee  202 , expenses associated with custody of gold  120 , printing and mailing costs, legal and audit fees, Securities and Exchange Commission (SEC) registration fees, and NYSE listing fees, i.e., fees associated with listing shares  130  on a secondary market in order to make them available to investors  210 . 
         [0078]    While certain embodiments have been described above, it will be understood that the embodiments described are by way of example only. Accordingly, the inventive concept should not be limited based on the described embodiments. Rather, the scope of the disclosure described herein should only be limited in light of the claims that follow when taken in conjunction with the above description and accompanying drawings. 
         [0079]    Further aspects of various embodiments include: 
         [0080]    A method for creating shares in a commodity, may include receiving a creation order comprising a request to create commodity shares; confirming delivery into an account of an amount of commodity associated with the commodity shares being requested; and releasing the requested commodity shares based upon the amount of commodity delivered into the account. The method may further comprise the step of acknowledging receipt of the creation order. The method may further comprise the step of sending a notice of pending commodity delivery to a custodian of the account. The method may further comprise the step of confirming receipt of the notice of pending commodity delivery. The value of the shares released may be approximately equal to the value of the commodity delivered into the account. The method may further comprise the step of receiving a reconciliation from the custodian. The commodity delivered into the account may be gold or gold receipts. The value of the shares released may be based on the net asset value of the received gold. The creation order may comprise a request to create a minimum amount of shares or a multiple of the minimum amount. The value of the amount of commodity delivered into the account may not be less than a minimum value. 
         [0081]    A method for creating shares in a commodity may include maintaining an account designated for the creation of commodity shares; receiving delivery into the account of an amount of the commodity; and sending a notice acknowledging receipt into the account of the amount of the commodity. The method may further include receiving a notice of pending commodity delivery comprising notice of an amount of commodity to be delivered into the account. The method may further include acknowledging receipt of the notice of pending commodity delivery. The method may further include generating a reconciliation detailing the amount of the commodity in the account. Further, the commodity received may be gold or gold receipts, and the amount of the commodity received may be less than or equal to the amount indicated in the notice of pending commodity delivery. The method may further include receiving receipts for an unallocated amount of the commodity that is equal to the amount of shortfall when the amount of the commodity received is less then the amount indicated in the notice of pending commodity delivery. The method may further include receiving cash in an amount that is equal to at least a portion of the amount of shortfall when the amount of the commodity received is less then the amount indicated in the notice of pending commodity delivery. 
         [0082]    A method for creating shares in a commodity may include submitting a creation order comprising a request to create commodity shares; delivering into a designed account an amount of the commodity associated with the commodity shares being requested; and receiving the requested shares. The method may further include confirming receipt of the creation order. The step of delivering the amount of the commodity may include purchasing the amount of the commodity and delivering the amount of the commodity into the designated account. The method may further include delivering the amount of the commodity by causing the amount of the commodity to be purchased and causing the purchased commodity to be delivered into the designated account. The method may further include delivering the amount of the commodity by purchasing an amount of commodity futures, converting the purchased commodity futures into the amount of the commodity, and delivering the amount of the commodity into the designated account. The amount of the commodity delivered may be less than the required amount associated with the requested shares, and delivering receipts for an amount of the commodity equal to the difference between the required and delivered amounts. The step of receiving the requested shares may include receiving the requested shares from a third party, and the third party may be the depository trust company. The method may further include making the received shares available to investors on a secondary market. The commodity may be gold or gold receipts. The creation order may include a request for the creation of a minimum amount of shares or a multiple of the minimum amount. 
         [0083]    A method for redeeming shares in a commodity may include receiving a redemption order comprising a request to redeem an amount of commodity shares associated with an amount of the commodity held in an account; receiving the amount of the commodity shares; and releasing from the account the amount of the commodity associated with the amount of the commodity shares received. The method may further include acknowledging receipt of the redemption order. The method may also include sending a notice of impending release instructions to a custodian of the account. The method may further include confirming receipt of the notice of impending release instructions. The method may further include releasing, from the account, the amount of the commodity by sending release instructions to a custodian of the account. The value of the amount of the commodity released may be approximately equal to the value of the commodity shares received. The method may further include receiving a reconciliation from the custodian. The commodity released may be gold or gold receipts, and the method may further include confirming that the amount of the commodity was released. The method may further include acknowledging that the shares were received. The method may further include requesting redemption of a minimum amount of shares or a multiple of the minimum amount. 
         [0084]    A method for redeeming shares in a commodity includes maintaining an account designated for the redemption of commodity shares; holding an amount of the commodity in the account associated with an amount of commodity shares to be redeemed; receiving release instructions to release the amount of the commodity from the account; and releasing the amount of the commodity from the account. The method may further include receiving a notice of impending release instructions comprising notice of the amount of commodity that will be released from the account upon redemption of the amount of commodity shares. The method may further include confirming receipt of the notice of impending release instructions. The method may further include confirming receipt of the release instructions. The method may further include confirming release from the account of the amount of the commodity. The step of releasing the amount of the commodity from the account may include transferring the amount of the commodity from the account to an owner of the redeemed commodity shares. The method may further include releasing the amount of the commodity from the account by selling the amount of the commodity in the account and paying the proceeds of the sale to an owner of the redeemed commodity shares. The method may further include generating a reconciliation detailing the amount of the commodity released from the account, and the commodity released may be gold or gold receipts. The amount of the commodity released is less than or equal to the amount indicated in the release instructions. The method may further include releasing receipts for the amount of the commodity that is equal to the amount of shortfall, when the amount of the commodity released is less then the amount indicated in the release instructions. Releasing the amount of the commodity may include releasing the amount of the commodity to a third party. 
         [0085]    A method for redeeming shares in a commodity includes submitting a redemption order comprising a request to redeem an amount of commodity shares; delivering the amount of commodity shares to be redeemed; and receiving an amount of the commodity associated with the amount of commodity shares delivered. The method may further include confirming receipt of the redemption order. The commodity may be received from a custodian of an account designated for the redemption of commodity shares. The amount of the commodity may be received from a third party. The amount of the commodity received may be less than the required amount associated with the redeemed commodity shares, and further comprising the step of receiving receipts for an amount of the commodity equal to the difference between the required and delivered amounts. The commodity may be gold or gold receipts. The redemption order may include a request for the redemption of a minimum amount of shares or a multiple of the minimum amount. 
         [0086]    A method for redeeming shares in a commodity may include submitting a redemption order comprising a request to redeem an amount of commodity shares; delivering the amount of commodity shares to be redeemed; and receiving an amount of cash from the sale of the amount of commodity associated with the amount of commodity shares delivered. 
         [0087]    A method for securitizing a commodity includes receiving a deposit of an amount of a commodity; holding said amount of a commodity in a trust; and issuing a number of shares corresponding to said amount of a commodity. The commodity may be gold or another precious metal. A value of the number of shares is approximately equal to a value of said amount of a commodity. The number of shares may be an integer multiple of a fixed minimum number. A portion of the trust may be held at a custodian site. Receiving the commodity may include maintaining a custodial account at a commodity depository, converting an amount of commodity futures into a physical amount of a commodity at said custodial account, transferring said physical amount of a commodity at said custodial account to said trust. The trust may include a trust account at the commodity depository, and the step of transferring comprises the step of transferring said physical amount of a commodity at said custodial account to said trust account. Receiving the commodity may include receiving the amount of a commodity at the custodian. The method may also include redeeming the number of equity shares for a second amount of the commodity. 
         [0088]    In one embodiment, a commodity trust system includes a commodity trust, wherein said commodity trust holds an amount of a commodity, a trustee to administer said commodity trust, and a number of shares corresponding to said amount of a physical commodity. The system may include one or more custodians, wherein each custodian has physical custody of a portion of said amount of a commodity. The amount of a commodity includes a number of receipts, each corresponding to an amount of unallocated commodity. 
         [0089]    While certain embodiments have been described above, it will be understood that the embodiments described are by way of example only. Accordingly, the scope of the inventive concept should not be limited based on the described embodiments. Rather, the scope of the disclosure provided herein should only be limited in light of the claims that follow when taken in conjunction with the above description and accompanying drawings.