UNG managers watched closely during July as these details emerged, gradually battening down the hatches and shifting position. When the SEC finally granted its request for new shares, UNG wasn't about to take the bait. Fear had taken hold and UNG does not want to increase its bet on the table if the rules could change midgame.
Thus far, the fear of regulation has succeeded in idling a major natural gas ETF in the middle of rush hour traffic and sending brokers running for the hills. Both brokers and issuers will protect themselves from lawsuits and regulation before reaching out to investors.
Neither party will go gently into the night. ProShares and Direxion have defended their products, and Charles Schwab himself recently stepped forward to question regulation. In a recent Wall Street Journal editorial, Schwab noted:
"I've always believed in the power of the market to drive innovation and drive down cost. I also believe in the individual and his or her ability to make reasoned decisions. I don't think our clients, or our competitors' clients, are looking for regulators or politicians to protect them from risk by constraining their choices."
Schwab's comments suggest that some brokers may not restrict their product offerings on the basis of intimidation.ETFs, like drugs, should not all be dispensed in the same manner. Traditional ETFs, like Tylenol, should be available to all investors. The warning on the box plus a childproof cap should be sufficient to prevent a widespread misuse of traditional funds. Nontraditional ETF strategies, like prescription drugs, should require additional documentation. I've called for restricting access to leveraged ETFs to only those investors cleared for margin or options trading. These aren't suitable for unsophisticated do-it- yourself investors. While the regulatory storm so far has been a lot of thunder and no lightning, the noise has succeeded in disrupting the ETF industry. Regulators should react or fall silent so that brokers, issuers and ETF investors can go on with their lives. -- Written by Don Dion in Williamstown, Mass.