SAN DIEGO (ETFguide.com) - The rhetoric by financial regulators
of greater restrictions on the buying and selling of commodities
futures contracts has finally come to fruition.
The U.S. Commodity Futures Trading Commission yesterday
announced it is withdrawing two no-action letters that originally
provided exemptive relief from federal agricultural speculative
positions limits set forth in CFTC regulations. The letters pertain
to the PowerShares DB Commodity Index Tracking Fund (NYSEArca:
DBC), which was previously allowed to take positions in corn and
wheat futures that exceeded federal limits.
'I believe that position limits should be consistently applied
and vigorously enforced,' CFTC Chairman Gary Gensler said.
'Position limits promote market integrity by guarding against
The revised restrictions limiting commodity positions become
effective on October 31st and will force PowerShares and Deutsche
Bank to alter their indexing strategies to comply with the new
Unlike commodity ETFs in its peer group, such as the iShares
S&P GSCI Commodity Index Fund (NYSEArca: GSG) and the
GreenHaven Continuous Commodity Index Fund (NYSEArca: GCC), the
PowerShares DB Commodity Index Tracking Fund is much more
concentrated than its diversified counterparts. DBC's underlying
index is composed of futures contracts on just six commodities,
weighted in the following manner: Light sweet crude oil (35%),
Heating Oil (20%), Gold (10%), Aluminum (12.5%), Corn (11.25%), and
Other commodity ETFs or trusts are facing challenges.
The $2.3 billion PowerShares DB Agriculture Fund (NYSEArca:
DBA), which has a 25% allocation to just four commodities (Corn,
Soybeans, Sugar and Wheat) will also be impacted by the CFTC's
Another commodity related trust, the U.S. Natural Gas Fund
(NYSEArca: UNG) has faced regulatory scrutiny along with
UNG's manager, Victoria Bay Asset Management, recently appealed
to the S.E.C. after it ran out of shares to issue. While its
request for share expansion was granted, the fund has not issued
new shares mainly to avoid running afoul with commodity regulators
who have been seeking to place limits on positions in natural gas
futures. UNG now trades at a 12% premium to its net asset value (
In related news, Deutsche Bank announced its plan to temporarily
suspend the share issuance for the PowerShares DB Crude Oil Double
Long ETN (NYSEArca: DXO). The note attempts to deliver 200% the
monthly performance of the Deutsche Bank Liquid Commodity Index -
Optimum Yield Oil Excess Return Index. The index is composed of
futures contracts on light sweet crude oil.
As a result of the halt, DXO's share price is likely to trade
with premiums or discounts to its underlying NAV, making it
resemble a closed-end fund. However, since DXO has an ETN
structure, its holders are also subject to credit default risk by
Deutsche Bank had no other public comments to make concerning
DXO other than a press release issued on August 18th.