CFTC Could Impede Growth of Commodity ETFs

March 28th at 12:00pm by Tom Lydon

After the public cried foul over the management of the commodities market, regulators placed position limits on the commodities futures market in an attempt to prevent price manipulation and speculation, but now one prominent commodity fund provider says the limits are hurting the exchange traded fund (ETF) industry.

Last Friday, U.S. Commodity Funds (USCF) said position limits would adversely affect the value of the ETF pools managed by itself and other fund providers, stating “position limits will hamper the ability of USCF and other managers of publicly traded, unlevered, passive commodity funds to prudently meet the investment objectives of the commodity pools that they manage,” reports Christopher Doering for Reuters.

The limit positions are mainly seen as a means to clamp down on speculations placed by big financial players that could throw around billions of dollars into commodities through index swaps or ETFs. The Commodities Futures Trade Commission is allowed to set position limits on 28 commodities, including energy, metals and agricultural markets. [Regulators Have An Eye On ETFs.]

ETFs and other investment entities say that position limits should be based on individual investors instead of the fund to report its holdings as a single position – the fund would hit the position limit level very quickly if is unable to assign ownership to investors, which would hamper asset growth. [CFTC Rules Already Baked Into ETFs.]

The comment period on position limits closed today, and the CFTC needs to vote again to finalize the ruling. Commodities traders have argued that there is no evidence that speculation inflates prices and also contend that the limits create greater volatility.

For more information on commodities, visit our commodity ETFs category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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