On March 18, COMEX silver once again fell below the $80 per ounce threshold, a key level that has seen intense battles between bullish and bearish traders throughout March. Amid this fierce market competition, the discount rate for the SDIC Silver LOF has dropped significantly. Wind data showed that by March 19, its discount rate had fallen below 20%, based on intraday real-time prices and the previous day's net asset value.
Previously, the SDIC Silver LOF had experienced high premiums, and social media was flooded with step-by-step tutorials promoting so-called "no-brainer arbitrage" strategies for the fund. However, interest in these guides has since cooled.
Following a sharp decline in international silver prices on January 30, SDIC UBS Fund announced an adjustment to the fund’s valuation methodology on February 2. After the announcement, the fund’s net asset value plummeted by 31.5% in a single day, setting a record for the largest one-day decline in a public fund and raising investor concerns about procedural compliance.
SDIC UBS Fund later stated that the adjustment did not violate regulations but nonetheless offered a compensation plan out of its own pocket, providing tiered compensation to eligible investors.
The incident has drawn widespread attention within the industry. Against the backdrop of ongoing volatility in international precious metal prices, many industry experts have described the SDIC Silver LOF event as a critical stress test for the sector. Triggered by extreme market conditions, the situation involved a complex mix of factors including market rules, product supply, social media influence, and risk mismatches, ultimately concluding with an unconventional large-scale compensation scheme. The event has prompted the industry to reconsider investor protection challenges in the age of viral information.
Many investors have now received compensation through the settlement, bringing the incident close to a resolution. However, volatility in international silver prices continues.
In 2025, silver experienced a rare bull market, with the price of London spot silver rising nearly 150% by year-end. Enthusiasm for silver investing spread globally. In China, index funds tracking silver futures contracts became a popular choice among investors. However, such products remain scarce, with the SDIC Silver LOF, which tracks silver futures on the Shanghai Futures Exchange, being one of the few available.
Amid high investor interest and limited product options, the secondary market premium for the SDIC Silver LOF rose significantly. As a result, discussions about arbitrage opportunities in the fund became a trending topic on social media. Many investors reported seeing influencers promote what was described as "risk-free arbitrage" trades across various platforms. Step-by-step tutorials were widely shared, and some novice investors even posted about successfully profiting from these strategies.
A review of these guides revealed that only a few influencers included risk warnings alongside their arbitrage explanations.
On December 2, 2025, the SDIC Silver LOF issued a trading notice warning that secondary market prices were highly volatile and urging investors to pay close attention to the fund’s net asset value. The notice highlighted that the fund’s closing price on December 1 was significantly higher than its net asset value, cautioning that盲目 investing in shares with high premium rates could lead to substantial losses.
Subsequently, such warnings were issued daily. To mitigate risks, SDIC UBS Fund repeatedly lowered the fund’s subscription limit, eventually reducing it to as low as ¥100 before suspending subscriptions entirely on January 27.
Shortly after the suspension, silver prices experienced a historic crash on January 30. London spot silver saw intraday volatility of 38.14%, closing down 26.42%, while COMEX silver fell 25.5% with 38.39% amplitude.
On February 2, the SDIC Silver LOF hit a limit-down in the secondary market, with sell orders exceeding ¥8 billion. Due to daily price limits on domestic futures contracts—such as the ±17% limit for silver futures on the Shanghai Futures Exchange—domestic prices could not fully reflect the sharper international moves within a single trading day. The fund’s net asset value calculation, based on the settlement price of the futures contract, would not have accurately captured the extreme volatility if not adjusted.
That evening, SDIC UBS Fund announced it would reassess the fund’s valuation by referencing price movements in major international silver futures markets, aiming to ensure the net asset value fairly reflected the underlying assets. The adjustment resulted in a 31.5% drop in the fund’s net asset value for the day, a record decline for a public fund.
Because the announcement was made after market hours, it sparked widespread questions about procedural and disclosure compliance.
On February 6, SDIC UBS Fund stated that it had established a working group to address investor concerns and support resolution through settlement or mediation. On February 15, the company unveiled a compensation plan funded from its own resources.
The plan offered tiered compensation to individual investors who had submitted redemption requests between January 30 and February 2, with full reimbursement for those affected by less than ¥1,000.
SDIC UBS Fund described the compensation as a proactive measure in an extreme market scenario, reflecting its commitment to investor experience and fiduciary responsibility.
As of March 18, COMEX silver continued to fluctuate around the $80 per ounce level, with strong opposition between bulls and bears. In the domestic market, the discount rate for the SDIC Silver LOF had fallen from over 40% to around 25%.
Jiang Han, a senior researcher at Pangoal Capital, described the incident as a typical "social media-driven" investment bubble burst. He noted that social media had misleadingly presented the complex futures-linked LOF as a simple arbitrage tool, attracting underqualified investors and creating a severe risk mismatch. He warned that when extreme premiums collapse due to underlying asset volatility or valuation adjustments, the non-linear decline can far exceed ordinary investors' expectations.
Tian Lihui, Dean of the Institute of Financial Development at Nankai University, attributed the abnormal volatility to a combination of market speculation, institutional flaws, and investor irrationality. He identified three key risks: the oversimplification of complex products on social media, gaps in valuation mechanisms during cross-market volatility, and investors' lack of understanding about LOF-specific risks.
Jiang Han suggested that traditional suitability assessments have become ineffective in the digital age, with standardized risk warnings often drowned out by social media noise. He recommended shifting regulatory focus from procedural compliance to substantive outcomes, extending suitability principles to digital content, and using technology to detect abnormal trading behavior. He also urged investors to make rational decisions independently and be wary of the risks behind high premiums.
Tian Lihui called for improved valuation rules for cross-border funds, dynamic premium monitoring, and circuit-breaker mechanisms. He emphasized the need for pre-emptive communication during extreme market conditions and clearer principles for fair valuation.
From a legal perspective, Zhao Jingguo, Managing Partner of Shanghai-based Xinben Law Firm, stressed the importance of procedural fairness in asset management. He advised regulators to clarify公告 timing and establish emergency protocols for extreme markets. Fund companies, he said, should conduct stress tests, enhance disclosure and communication, and use valuation adjustments cautiously. Investors, meanwhile, must improve their ability to identify risks and remain vigilant.
Comments