NEW YORK ( TheStreet) -- The United States Natural Gas ETF ( UNG) closed at a 8.43% premium to net asset value Thursday, underscoring the fund's decision to not issue additional shares. Premiums like this are unacceptable, and this fund is now an ETF in name only. Trading in UNG should be halted immediately. ETFs are designed as transparent vehicles that are set to track an underlying basket of securities. Transparent is hardly a word that one can use when describing the current state of UNG. The fund's refusal to create additional units is an admission that the fund managers are not sure of what the fund's investment strategy should be. UNG is currently examining investment alternatives for the fund's assets. Managers have been buying swaps and unloading soon-to-be-regulated futures contracts. A halt in trading would allow UNG managers to wait for answers from the Commodities Futures Trading Commission and come up with a game plan. UNG has not been tracking its underlying basket for some time now. The creation of additional shares was halted in early July when UNG ran out of its allotment of additional shares. Since the creation/redemption process is the heart of all ETFs, trading should have been halted when it went into cardiac arrest. Regulators are changing the rules mid-game with UNG. They have taken the wheels off of the UNG bicycle and then patiently asked it to continue rolling down the street. This dangerous, unwieldy fund will continue to be a safety hazard. UNG managers cannot be blamed for not wanting to create additional shares. The ongoing CFTC debate will bring new regulation, likely in the form of position limits, which will paralyze UNG's current creation process. The rules are about to change again, and UNG is skipping its turn until they've been established.
The continued trading of this fund is a public health hazard that must be addressed. Without the creation process, this fund cannot trade as advertised and it faces a potential lawsuit. It is the creation and redemption process that keeps a fund's market price in line with its underlying value. In an age of electronic trading and high volume, extreme premiums and discounts should be viewed with a skeptical eye. In the last month every regulator in the book has wanted to scrutinize the booming ETF industry. It's time for one of them to do the right thing and call a time out before someone gets hurt. -- Written by Don Dion in Williamstown, Mass.