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TheStreet Open House

Huge ETN Euthanized

Stocks in this article: DB DXO UNG

Editor's note: This article was corrected after its initial publication. Please see Corrections and Clarifications.

NEW YORK ( TheStreet) -- In the past, ETF issuers killed off their weakest funds, stragglers that could not garner enough investor interest to be viable.

Wednesday, however, was a landmark moment for the ETF industry, as Deutsche Bank (DB - Get Report) euthanized the wildly popular PowerShares DB Crude Oil Double Long ETN (DXO).

This leveraged, futures-based commodity ETN has not had trouble attracting trading volume. As of Sept. 3, the three-month average daily trading volume for the fund was 12,775,600 shares. Currently, DXO has $407 million in outstanding notes that will have to be redeemed to investors on Sept 9.

As both a leveraged fund and a futures-based commodity fund, DXO has been caught in a double regulatory crossfire this summer as the Commodity Futures Trading Commission targets "speculators" in the commodities markets and Financial Industry Regulatory Authority scrutinizes leveraged ETF products.

Regulation on both fronts seems imminent , and funds like United States Natural Gas (UNG) and DXO have tried to protect their funds from restrictions.

DXO's biggest crime, however, is its popularity. CFTC regulators will likely slap position limits on future-based commodity ETFs in the near future, making it difficult for funds to grow and track their underlying value. Larger funds, like DXO and UNG, may have reached these levels already, or are close to doing so.

One of the measures that these funds are taking to stay within limits is to halt creation. Both DXO and UNG recently halted creation, along with funds like iShares S&P GSCI Commodity Indexed Trust (GSC) and iPath Natural Gas (GAZ), to stem the need for the contracts in question.

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