Ever since oil prices came withing spitting distance of $150 a barrel, commodity exchange traded funds (ETFs) have been the subject of bogeyman suspicions. Will the CFTC hearings in Washington answer the question once and for all?

ETFs are fairly simple index-tracking investment tools. Their low cost and transparency have made them versatile and popular with all types of investors. Don Dion for TheStreet reports that the unique structure of ETFs has allowed issuers to help investors gain exposure to previously inaccessible parts of the market.

United States Commodity Funds Chief Investment Officer John Hyland spoke in front of the CFTC to defend both United States Natural Gas (UNG) and United States Oil (USO). Asjylyn Loder and Tina Seeley for Bloomberg report that he said the claims about their funds were “self-serving statistical gibberish.”

Hedge funds and institutions have used leveraged and commodity strategies for a long time. But now these strategies are available to anyone, thanks to the “bona fide hedging exemption,” which allows ETF issuers to buy as many components as they want.

In traditional funds, Dion explains, the creation and redemption goes unnoticed. In commodity funds, those components are futures and swaps. A large amount of buying and selling from a big player could influence prices.

This has led to the potential for an overhaul in the commodities creation system, and the CFTC is toying with the idea of creating limits.

Hyland said that such caps imposed by the government would ultimately lower the liquidity his funds deliver to the futures markets, because the existing funds would need to be broken off into smaller funds.

CFTC Chairman Gary Gensler said that they should “seriously consider” setting limits on positions, and that they should be applied consistently to all markets dealing with physical commodities, writes Moming Zhou for MarketWatch. Only limits on agricultural commodities exist.

Hyland did say in his testimony that while current regulations generally suffice, he noted that limiting speculation by large banks would be a good idea, says Brian Baskin for The Wall Street Journal.

For more stories about natural gas, visit our natural gas category.

Tags: Commodity ETFs, Energy, Long-Short ETFs, Natural Gas, Oil, UNG, USO