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.

A special note from Don: Jim Cramer himself says, "No one else knows ETFs like Don Dion." And now you can benefit from my ETF expertise. My new service TheStreet ETF Action by Don Dion can help investors at all levels profit from the world of ETFs. Click here to be eligible for a charter membership. Space is limited, so act now.

At the time of publication, Dion had no positions in equities mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

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