AIG Credit Agreements Limbo Halted Commodity Exchange Traded Notes

AIG Fears Cause Trading to Halt in ETFs

It has been widely reported including by Reuters and the Daily Telegraph that  banks and brokerages ceased making markets in commodity securities backed by matching contracts from troubled insurer American International Group Inc on Monday afternoon. ETF Securities said on its website it was "actively working on possible ways of providing investors with liquidity" - including arranging suitable collateral for market-makers.

ETF Securities, the leading provider of exchange-traded commodities (ETC) in Europe, is feeling the impact of the troubles facing the insurance company AIG, according to media reports. ETF Securities offers more than 100 ETCs listed in the UK, Germany, France and other European markets. As of September 12, 2008, it had $7.65 billion in assets under management, making it one of the largest suppliers of exchange-traded commodities in the world.

According to reports, many of the products issued by ETF Securities are backed by credit agreements with AIG. They carry a credit risk similar to the one facing exchange-traded notes; i.e., if the party backing the ETCs goes bankrupt, shareholders become creditors of the firm.