The Hippocratic oath of doctors does not extend to the offices of Wall Street, and questions have been raised about the dispensing of these ETF products. Not wanting to be seen as irresponsible drug dealers, brokerage firms are washing their hands of leveraged ETFs before the financial DEA comes knocking. Firms like UBS (UBS) and Ameriprise (AMP) have bowed out of the leveraged ETF business.
Fear of regulation has spread to the ETF industry as well. The U.S. Natural Gas (UNG) ETF recently declined to issue additional shares despite a request for these very same shares only a month before. During the period in between the request and the SEC's response, another financial regulatory authority, the Commodities Futures Trading Comission (CFTC), got involved.
Economic downturns and the collapse of financial bubbles are a breeding ground for finger-pointing. One group that has been targeted with a vengeance are the "speculators." Whether the headline is housing or commodities, the shadowy figures of speculators seem to haunt the recesses of plotlines across the industry. One of the places that speculators seem most at home is the commodities futures markets.
The CFTC is the sheriff in that town and this agency has been monitoring a new bully in the commodities markets. Funds like UNG and U.S. Oil (USO) use futures contracts to track their objectives. These funds have become so popular so fast that they now represent a significant segment of the open interest in these markets.The CFTC has begun to examine whether these funds could be dictating these commodities markets, rather than tracking them. While upcoming regulation could take many forms, a likely incarnation will be position limits.