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TheStreet Open House

Leveraged ETF Shut Down Won't Be Last

NEW YORK ( TheStreet.com) -- Deutsche Bank (DB - Get Report) announced that it will shutter PowerShares DB Crude Oil Double Long Exchange Traded Note (DXO) as the war against energy "speculators" claims its first exchange-traded product.

The ETF industry has been under fire all summer and the battle is being waged on multiple fronts by multiple regulatory groups. DXO, unfortunately, was caught in dual crossfire: It is a futures-based commodity fund and it is leveraged.

Futures-based commodity funds like DXO and U.S. Natural Gas (UNG) have been under fire this summer as the Commodities Futures Trading Commission holds hearings. It is expected that upcoming regulation will limit the number of futures contracts that each fund can own in an effort to cap the effect that any single fund can have on the market.

In an announcement yesterday, Deutsche Bank alerted investors that it would be redeeming the $425 million in outstanding DXO notes. The press release from Deutsche Bank notes that "limitations imposed by the exchange on which Deutsche Bank manages the exposure of the Notes have resulted in a 'regulatory event' as defined in the terms of the Notes, which has caused Deutsche Bank to redeem the Notes."

According to the Financial Times, the CFTC has denied any action against DXO. This statement seems to be irrelevant, since DXO, along with other futures-based commodity funds, have been backed into a corner.

As financial regulation becomes the new pet cause of politicians in Washington, one of the first targets is "energy speculators" who manipulate the spot prices of popular commodities like gas and oil. About a year after the oil bubble burst and crushed shares of funds like U.S. Oil (USO), the CFTC is examining the effect that passive indexing instruments like ETFs have on commodities prices.

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