Still daring to arbitrage? CITIC Silver LOF takes action again: Class A regular investment limit lowered back to 100 yuan, effective from December 29

Still daring to arbitrage? CITIC Silver LOF takes action again: Class A regular investment limit lowered back to 100 yuan, effective from December 29

After a period of sharp price fluctuations in the secondary market, the SDIC UBS Silver Futures Securities Investment Fund (LOF) has once again tightened subscription restrictions. It announced that starting from December 29, the upper limit for regular investments in Class A fund shares will be lowered to 100 yuan. Previously, this cap had been relaxed to 500 yuan in order to guide arbitrage funds to smooth out the premium.

On the evening of December 25, SDIC UBS Silver LOF issued an announcement stating that trading would resume after suspension from market open on December 26 until 10:30, warning of significant premium risk in secondary market trading prices. As of December 25, the fund's closing price in the secondary market was 2.804 yuan, which was 45% higher than the NAV per fund share of 1.9278 yuan on December 24.

After consecutive price increases, the fund hit the daily limit-down during trading today, confirming market concerns over arbitrage risks. Fund researcher Bi Mengyan from Geshang Fund stated that after the previous relaxation of the subscription quota, a large influx of arbitrage funds entered. These funds engage in arbitrage by subscribing off-market and selling on-market, which is leading to a fall in on-market prices.

SDIC UBS Fund Management Co., Ltd. emphasized in the announcement that the high premium rate of the fund’s secondary market price is not sustainable, and reminded investors to pay attention to losses possibly caused by market supply and demand, systemic risk, liquidity risk, and other factors.

Subscription quota tightened again, arbitrage opportunities squeezed

SDIC UBS Silver LOF announced that starting from December 29, the upper limit for regular investments in Class A fund shares will be lowered from 500 yuan to 100 yuan. This comes just one week after the previous relaxation of the subscription quota.

It is worth noting that the fund has adjusted its investment cap multiple times. On October 15, SDIC UBS Silver LOF Fund announced that the upper limits for regular investments in Class A and Class C shares were 6,000 yuan and 40,000 yuan, respectively; on October 20, the fund issued another announcement, further tightening the limit to 100 yuan and 1,000 yuan for Class A and Class C shares, respectively; on December 19, the fund announced the caps had been adjusted to 500 yuan each for both Class A and Class C shares.

The fund manager stated in the announcement that the subscription cap for Class A fund shares will be adjusted again in the future, and especially emphasized that the high premium rate of secondary market prices is not sustainable. As of now, the fund is operating normally and will continue to strictly follow relevant laws, regulations, and the terms of the fund contract in managing investments.

Premium reaches 45%, temporary trading halt to warn of risks

According to the announcement, the NAV per fund share of SDIC UBS Silver LOF was 1.9278 yuan on December 24, while the closing price in the secondary market reached 2.804 yuan by December 25, showing a significant premium. The fund manager warns that investors who blindly invest in fund shares with a high premium rate may face substantial losses.

To protect investors’ interests, the fund will halt trading from market open to 10:30 am on December 26, and then resume trading. The announcement states that if the premium rate in the secondary market does not effectively decrease on the day, the fund has the right to apply to the Shenzhen Stock Exchange for further temporary trading halts or extensions as a risk warning to the market.

As of midday close on December 25, SDIC UBS Silver LOF turned from consecutive limit-ups to a limit-down. According to Shanghai Securities News, industry insiders had anticipated this. Fund researcher Bi Mengyan from Geshang Fund stated:

Raising the subscription cap for Class A shares from 100 yuan to 500 yuan was meant to increase the supply of shares on the market, guiding arbitrage capital to subscribe off-market and sell on-market, thus smoothing the premium. After the A share quota was relaxed on December 22, arbitrage funds actively subscribed, and after T+2 they could convert into market shares, with everyone scrambling to cash out. Arbitrage activity is very likely to reduce the high premium and lead to a market price drop.

Some industry insiders point out that while this fund saw a large increase in the past month, investment risk is also high. The fund manager emphasized in the announcement that the trading price in the secondary market not only carries NAV volatility risk, but is also affected by market supply and demand, systemic risk, liquidity risk, and other factors.

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