Dion's Weekly ETF Blog Wrap
Commodity ETFs Could See More Scrutiny
Published 4/26/2011 3:21 p.m. EDT
Has the rapid onslaught of commodity ETFs gone too far? Accusations over speculation and manipulation continue to fly, with ETF/ETN issuers such as U.S. Commodity Funds and Barclays serving as the complicit dealers for big-bank manipulators.
Recent actions by the Commodity Futures Trading Commission (CFTC) reveal that regulators are serious about cracking down on some commodities vehicles. According to an article in today's Wall Street Journal, the CFTC is moving to curb mutual funds that rely on non-U.S. subsidiaries to make speculative bets on commodities and currencies. By using foreign subsidiaries, these mutual funds evade the limits of CFTC regulation. (They are, however, within the regulatory range of the SEC.)While the spectacular rise and relative youth of the ETF industry help to force it into the spotlight, the mutual fund industry is still the seasoned big brother. As the managers of large futures-backed commodity ETFs such as the United States Natural Gas Fund (UNG) and the PowerShares DB Commodity Index Tracking Fund (DBC) have already realized, the CFTC is developing an equal zeal for regulating commodities vehicles across the board. While many futures-backed ETFs have yet to reach the critical mass necessary to put them on the CFTC's radar, the current pressure on the commodity mutual fund industry could easily extend to a growing force of commodity ETFs in the months ahead. On a personal note, today's headlines about the structure of commodity-tracking mutual funds sent a shiver down my spine. Exactly one year ago today, I wrote a blog piece that predicted that hastily enforced CFTC regulations could push ETF issuers to restructure funds abroad. In a post titled "
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