NEW YORK ( TheStreet) - One of the more talked about ETF filings over the past month has been a corn-focused ETF proposed by Teucrium Trading, an investment firm based in Brattleboro, VT.

The Teucrium Corn Fund will trade under the symbol CORN and track the performance of corn prices using a unique weighting technique that utilizes CBOT futures contracts as well as swaps. 35% of the fund's basket will be invested in second-to-expire contract, 30% of the fund will be weighted in the third-to-expire contract and the remaining 35% of the fund will be in the Dec. contract that follows the expiration of the third-to-expire contract.

The fund is expected to have a 1% expense ratio.

CORN will provide U.S. investors with their first pure play opportunity on corn. In Europe, ETF Securities, the company responsible for the popular ETFS Physical Platinum Shares ( PPLT) and the ETFS Physical Palladium Shares ( PALL), has offered funds to fill this niche for years. Today, using this company's products, foreign investors can take long, short or leveraged bets on the performance of the crop.

Prior to the introduction of CORN, U.S. investors looking for access to any single grain had been forced to settle for broader ETFs such as PowerShares DB Agriculture ( DBA) or ETNs such as the iPath Dow Jones-UBS Grains Total Return Subindex ETN ( JJG). DBA tracks an index of several agricultural products, with only 12.5% in corn; JJG tracks an equal weighted basket of corn, wheat and soybean futures contracts.

While the corn fund will provide investors with what may be an interesting new investing opportunity, the timing of the fund could not be worse. Right now, with regulatory bodies taking aim at commodities ETFs and derivative-backed ETFs, CORN could face some formidable roadblocks before entering the market.

Over the past month, I have been following the ongoing regulatory firestorm that has faced the ETF arena. Right now, both the Securities and Exchange Commission and the Commodities Futures Trading Commission have taken aim at certain aspects of the exchange-traded fund arena in hopes of reining in products they deem dangerous to the retail investor.

In an effort to prevent futures-backed ETFs from becoming so large that they distort the market, the CFTC is mulling the possibility of employing stricter position limits on funds designed to track the performance of "finite" commodities.

Interestingly, although CORN is explicitly designed to track a finite commodity, the CFTC's investigation appears to be the lesser threat right now.

As I documented in the article, ETF Regulators Drop the Regulatory Hammer, while the CFTC's sting is focused on hard asset backed funds like the United States Oil Fund ( USO) and the PowerShares DB Gold Fund ( DGL), at this time there are no immediate plans in place to investigate soft commodities such as sugar, coffee and corn.

That doesn't mean, however, that the CFTC does not have its eyes on agriculture-backed ETFs. As I reported last Aug., the CFTC repealed a decision on Aug. 20, 2009 that had previously exempted futures-based agricultural ETFs from position limits.

In reaction to this decision, DBA restructured its underlying portfolio to reduce exposure to individual commodities.

Will the SEC's Aug. 20 ruling have an impact on the launch of CORN? It depends on the amount of investor interest that the fund attracts. While CORN's manager has reduced the likelihood that the fund would hit position limits by spreading exposure over three different contracts, it is possible that massive investor interest in the fund could push CORN up against these limits in the future.

On the other hand, Teucrium Trading's decision to use swaps to track corn's price will put CORN on the SEC's radar and set back the fund's launch.

Although the SEC's inquiry into the use of derivatives in ETFs will mainly affect companies such as Direxion and ProShares, which are responsible for introducing products that employ derivatives to produce magnified returns, there are also a number of commodity products that use relatively illiquid and opaque swaps. The United States Natural Gas Fund ( UNG) is one example.

Right now, proposed funds that have been designed to use derivatives like swaps have been put on ice by the government agency until the review has wrapped.

The corn ETF proposed by Teucrium could very well usher in a new era of commodity ETF investing, if the SEC and CFTC are able to deal effectively with these funds. Strong investor demand is what tested the limits of existing regulations on commodity ETFs and the fund issuers are dealing with this reality to meet demand. Now the ball is in the regulatory agencies' court.

At the time of publication, Dion owned PPLT.

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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