Over the past few weeks, things have become a bit difficult for commodity-focused exchange traded products (ETPs) as Barclays Capital announced that it is halting the issuance of new shares in the iPath Dow Jones-AIG Natural Gas ETN (GAZ).
GAZ became the third commodity focused exchange traded product to stop issuing shares, joining the United States Natural Gas Fund (UNG) and the PowerShares DB Crude Oil Double Long ETN (DXO). After the sponsors of UNG announced they were suspending the issuance of new shares, many investors seeking exposure to natural gas fled to GAZ, resulting in significant inflows. In fact, at the end of July, GAZ held nearly $127 million in assets but closed on August 20th with $187 million in assets, a jump of 47%.
With the increasing popularity of these commodity focused ETPs , the Commodity Futures Trading Commission (CFTC) is analyzing these indexes under a microscope and issuers are worried that the CFTC will impose strict position limits on commodity holders, which may make it difficult to track their benchmarks. Attention to these funds was especially drawn after the commodities market was accused of manipulating futures prices and market fluctuations.
The issuers of these funds are haltering new shares to cap their size which prevents them from being in a position where they would be forced to redeem shareholder positions to meet new CFTC caps.
To take it a step further, the CFTC increased regulations by ruling that the PowerShares DB Comodity Index Fund (DBC) and the PowerShares DB Agriculture Fund (DBA) are no longer exempt from position limits in wheat and corn. The CFTC is limiting the funds to 13,500 Chicago Board of Trade corn contracts and 5,000 wheat contracts in any non-spot month, and an all months combined limit of 22,000 corn contracts and 6,500 wheat contracts.
As for the future of these ETPs, Barclays has openly stated that more of its iPath ETNs may join GAZ, and it appears that regulatory agencies will continue to impose stringent limitations on the commodities industry.
