Saturday, August 22, 2009

CFTC Speculation Rules Hit $10 Billion in ETFs, ETNs

From Bloomberg:
Barclays Bank PLC today stopped selling new shares of its iPath natural gas exchange-traded notes, the latest of $10 billion worth of exchange-traded products squeezed by potential limits on commodity speculation.

The new and anticipated limits by the Commodity Futures Trading Commission have so far affected exchange-traded products including the largest agricultural, natural gas and broad-based commodity funds in the U.S.

“Clearly, this is a new level regulation aimed at these funds,” said Bradley Kay, an ETF analyst at Morningstar Inc. in Chicago. “Individual investors no longer have a safe way to play the commodities market.”

Barclays suspended sales of its iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN. The number of notes outstanding has more than doubled since competitor U.S. Natural Gas Fund (UNG), stopped selling new shares on July 7.

The suspension of the iPath notes and U.S. Natural Gas Fund shares means investors will pay premiums to invest in natural gas just as the fuel has fallen below $3 per million British thermal units for the first time in seven years.

“These things are becoming more like closed-end funds, and closed-end funds have a lot of tricks and issues,” said Scott Burns, director of ETF analysis at Morningstar Inc. in Chicago. “The math has become a lot more complex.”

Premium Grows

The ETN’s premium grew today as the notes rose 18 cents, or 1.3 percent, to $14.15 on the New York Stock Exchange. The index the notes track, Dow Jones-UBS Natural Gas Total Return Index fell 10.6 cents, or 1 percent. The premium rose to 6.5 percent, according to data compiled by Bloomberg....MORE