| Significant Accounting Policies |
2. Significant Accounting Policies
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires those responsible for preparing financial statements to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Trust.
2.1. Basis of Accounting
The Sponsor has determined that the Trust falls within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services—Investment Companies , and has concluded that for reporting purposes, the Trust is classified as an Investment Company. The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act.
2.2. Valuation of Silver
The Trust follows the provisions of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 provides guidance for determining fair value and requires disclosure regarding the inputs to valuation techniques used to measure fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Effective March 29, 2019, silver is held by JPMorgan Chase Bank N.A. (the “Custodian”) on behalf of the Trust through a sub-custodian, and is recorded at fair value. Prior to March 29, 2019, the custodian was HSBC Bank plc . Since August 15, 2014, an electronic, over-the-counter silver bullion auction has been conducted in London, England to establish a fixing price for an ounce of silver once each trading day (the “ LBMA Silver Price”). The LBMA Silver Price is established by the 1 2 London Bullion Market Association (“LBMA”) authorized bullion banks and market makers participating in the auction and disseminated by major market vendors. The LBMA Silver Price was initially operated by CME Group, Inc. until October 2, 2017, at which time the ICE Benchmark Administration (“IBA”) commenced administration of the LBMA Silver Price. The London Metal Price for silver held by the Trust is the LBMA Silver Price. Once the value of silver has been determined, the Net Asset Value (the “ NAV ”) is computed by the Trustee by deducting all accrued fees, expenses and other liabilities of the Trust, including the remuneration due to the Sponsor (the “Sponsor’s Fee”), from the fair value of the silver and all other assets held by the Trust.
The Trust recognizes changes in fair value of the investment in silver as changes in unrealized gains or losses on investment in silver through the Statement of Operations.
The per Share amount of silver exchanged for a purchase or redemption is calculated daily by the Trustee, using the LBMA Silver Price to calculate the silver amount in respect of any liabilities for which covering silver sales have not yet been made, and represents the per Share amount of silver held by the Trust, after giving effect to its liabilities, to cover expenses and liabilities and any losses that may have occurred.
2.2. Valuation of Silver (continued)
Fair Value Hierarchy
Generally accepted accounting principles establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:
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Level 1.
Unadjusted quoted prices in active markets for identical assets or liabilities that the company has the ability to access.
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Level 2.
Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments and similar data.
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Level 3.
Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the company’s own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The investment in silver is classified as a level 2 asset, as the Trust’s investment in silver is calculated using primary market pricing sources supported by observable, verifiable inputs.
The categorization of the Trust’s assets is as shown below:
(Amounts in 000's of US$)
December 31, 2019
December 31, 2018
Level 2
Investment in silver
$ 418,938
$ 339,822
There were no re-allocations or transfers between levels during the years ended December 31, 2019 and 2018 .
2.3. Silver Receivable and Payable
Silver receivable or payable represents the quantity of silver covered by contractually binding orders for the creation or redemption of Shares respectively, where the silver has not yet been transferred to or from the Trust’s account. At December 31, 2019 , the Trust had no silver receivable for Shares created and $ 11,367,104 of silver payable for Shares redeemed. At December 31, 2018 , the Trust had no silver receivable or payable for the creation or redemption of Shares. Generally, for all orders ownership of silver is transferred within two business days of the trade date.
2.4. Creations and Redemptions of Shares
The Trust expects to create and redeem Shares from time to time, but only in one or more Baskets (a Basket equals a block of 50,000 Shares). The Trust issues Shares in Baskets to Authorized Participants on an ongoing basis. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. An Authorized Participant is a person who (1) is a registered broker-dealer or other securities market participant such as a bank or other financial institution which is not required to register as a broker-dealer to engage in securities transactions, (2) is a participant in The Depository Trust Company, (3) has entered into an Authorized Participant Agreement with the Trustee and the Sponsor and (4) has established an Authorized Participant Unallocated Account with the Custodian or another silver bullion clearing bank to effect transactions in silver bullion. An Authorized Participant Agreement is an agreement entered into by each Authorized Participant, the Sponsor and the Trustee which provides the procedures for the creation and redemption of Baskets and for the delivery of the silver required for such creations and redemptions. An Authorized Participant Unallocated Account is an unallocated silver account established with the Custodian by an Authorized Participant .
The creation and redemption of Baskets is only made in exchange for the delivery to the Trust or the distribution by the Trust of the amount of silver represented by the Baskets being created or redeemed, the amount of which is based on the combined NAV of the number of Shares included in the Baskets being created or redeemed determined on the day the order to create or redeem Baskets is properly received.
Authorized Participants may, on any business day, place an order with the Trustee to create or redeem one or more Baskets. The typical settlement period for Shares is two business days. In the event of a trade date at period end, where a settlement is pending, a respective account receivable and/or payable will be recorded. When silver is exchanged in settlement of redemption, it is considered a sale of silver for financial statement purposes.
The amount of silver represented by the Baskets created or redeemed can only be settled to the nearest 1/1000 th of an ounce. As a result, the value attributed to the creation or redemption of Shares may differ from the value of silver to be delivered or distributed by the Trust. In order to ensure that the correct amount of silver is available at all times to back the Shares, the Sponsor accepts an adjustment to its Sponsor’s fee in the event of any shortfall or excess. For each transaction, this amount is not more than 1/1000 th of an ounce.
As the Shares of the Trust are subject to redemption at the option of Authorized Participants, the Trust has classified the outstanding Shares as Net Assets. Changes in Shares are presented in the Statement of Changes in Net Assets.
2.5. Income Taxes
The Trust is classified as a “grantor trust” for US federal income tax purposes. As a result, the Trust itself will not be subject to US federal income tax. Instead, the Trust’s income and expenses will “flow through” to the Shareholders, and the Trustee will report the Trust’s proceeds, income, deductions, gains, and losses to the Internal Revenue Service on that basis.
The Trust has adopted FASB ASC 740-10, Income Taxes. The Sponsor has evaluated the application of ASC 740-10 to the Trust, to determine whether or not there are uncertain tax positions in its major jurisdictions that require financial statement recognition. Based on this evaluation, the Sponsor has determined no reserves for uncertain tax positions are required to be recorded as a result of the application of ASC 740-10. As a result, no income tax liability or expense has been recorded in the accompanying financial statement s.
2.6 Investment in Silver
Changes in ounces of silver and the respective values for the years ended December 31, 2019 and 2018 are set out below:
Year Ended
Year Ended
(Amounts in 000's of US$, except for ounces data)
December 31, 2019
December 31, 2018
Ounces of silver
Opening balance
21,973,640.6
20,820,654.4
Creations
2,183,968.2
2,919,544.9
Redemptions
(874,529.4)
(1,704,114.0)
Transfers of silver to pay expenses
(66,812.8)
(62,444.7)
Closing balance
23,216,266.6
21,973,640.6
Investment in silver
Opening balance
$ 339,822
$ 351,140
Creations
36,430
44,194
Redemptions
(13,838)
(27,347)
Realized loss on silver distributed for the redemption of Shares
(2,249)
(4,374)
Transfers of silver to pay expenses
(1,068)
(986)
Realized loss on silver transferred to pay expenses
(150)
(179)
Change in unrealized gain / (loss) on investment in silver
59,907
(22,626)
Change in unrealized gain on unsettled creations or redemptions
84
-
Closing balance
$ 418,938
$ 339,822
2.7. Expenses / Realized Gains / Losses
The primary expense of the Trust is the Sponsor’s Fee, which is paid by the Trust through in-kind transfers of silver to the Sponsor.
The Trust will transfer silver to the Sponsor to pay the Sponsor’s Fee that will accrue daily at an annualized rate equal to 0.45% of the adjusted net asset value (“ANAV”) of the Trust, paid monthly in arrears. Presently, the Sponsor is continuing to waive a portion of its fee and reduce the Sponsor’s Fee to 0.30% (which it has done since the Date of Inception).
The Sponsor has agreed to assume administrative and marketing expenses incurred by the Trust, including the Trustee’s monthly fee and out-of-pocket expenses, the Custodian’s fee and the reimbursement of the Custodian’s expenses, exchange listing fees, United States Securities and Exchange Commission (the “SEC”) registration fees, printing and mailing costs, audit fees and certain legal expenses.
For the year ended December 31, 2019 , the Sponsor’s Fee, net of waiver, was $ 1,087,303 ( December 31, 2018 : $ 984,811 ; December 31, 2017 : $1,039,540 ).
As a result of the waiver, fees waived for the year ending December 31, 2019 were $ 543,652 ( December 31, 2018 : $ 492,406 ; December 31, 2017 : $519, 770 ).
At December 31, 2019 , $ 106,796 was acc rued and payable to the Sponsor ( December 31, 2018 : $ 88,176 ).
With respect to expenses not otherwise assumed by the Sponsor, the Trustee will, at the direction of the Sponsor or in its own discretion, sell the Trust’s silver as necessary to pay these expenses. When selling silver to pay expenses, the Trustee will endeavor to sell the smallest amounts of silver needed to pay these expenses in order to minimize the Trust’s holdings of assets other than silver. Other than the Sponsor’s Fee , the Trust had no expenses during the years ended December 31, 2019, 2018 and 2017 .
Unless otherwise directed by the Sponsor, when selling silver the Trustee will endeavor to sell at the price established by the LBMA Silver Price. The Trustee will place orders with dealers (which may include the Custodian) through which the Trustee expects to receive the most favorable price and execution of orders. The Custodian may be the purchaser of such silver only if the sale transaction is made at the next LBMA Silver Price, or such other publicly available price that the Sponsor deems fair, in each case as set following the sale order. A gain or loss is recognized based on the difference between the selling price and the cost of the silver sold. Neither the Trustee nor the Sponsor is liable for depreciation or loss incurred by reason of any sale.
Realized gains or losses result from the transfer of silver for Share redemptions and / or the payment of expenses and are recognized on a trade date basis and are determined as the difference between the fair value and cost of silver transferred .
2.8. Subsequent Events
In accordance with the provisions set forth in FASB ASC 855-10, Subsequent Events , the Trust’s management has evaluated the possibility of subsequent events existing in the Trust’s financial statemen ts through the filing date. During this period, no other material subsequent events requiring adjustment to or disclosure in the financial statements were identified. |
