Commodity ETFs Having Problems

Recently, some commodity ETFs have been forced to stop the creation process of ETF creation units, meaning that the funds and trusts are being forced to act like closed in funds.  CEFs have a very limited way to arbitrage away premiums or discounts; investors buy more of the fund when at a discount and sell when at a premium. In contrast, typical ETFs have a great incentive to keep premiums and discounts to a minimum through various methods.

Neither the Trust nor the Investing Pool is an investment company registered under the Investment Company Act. Shares of the trust are not subject to the same regulatory requirements as mutual funds,” said iShares in a new warning on its Web site about GSG. (Quote Source:

“The different set of regulatory approvals needed by commodity pools includes government approval to issue more shares at certain predetermined periods,” said Murray Coleman, Editor of, in a report on the subject.


Since I’ve been studying ETFs, there have been rumors of potential problems with commodity ETFs that the regulatory agencies have been overlooking. Recently, the problem came up with the United Natural Gas Fund (NYSEArca: UNG) after quickly gaining assets this spring. The fund stopped issuing shares in mid-August due to regulatory investigation into the commodity marketplace and the role of these kinds of ETFs. Basically, UNG was controlling the vast majority of all trading in the natural gas market. UNG’s management is looking for ways to reopen the ETF and minimize the use of futures-this may be through the use of SWAP agreements. This fund since closing has traded at a significant premium-16% last week.

The Main Issue

The main issue being looked at is position limits for these funds. For example, the SPDR, GLD, holds more gold than many of the world’s central banks, including Canada. Possible outcomes are unknown as the CFTC (Chicago Futures Trading Commission) looks further into the matter. According to analysts, the CFTC will not overlook the use of SWAP agreements by ETFs. If size limits are enforced, funds may be forced to sell shares.

Closing Announcements

  • The U.S. Natural Gas Fund (NYSEArca: UNG): Halted
  • iShares S&P GSCI Commodity Index Trust (NYSEArca: GSG): to close when shares reach 55.9 million (currently 52 mil)
  • The iPath Dow Jones-AIG Natural Gas (NYSEArca: GAZ): Halted
  • The PowerShares DB Crude Oil Double Long ETN (NYSEArca: DXO): Halted
By Published On: August 27, 2009

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