Exchange traded fund (ETF) providers and investors are anticipating overhaul within the financial industry, and the changes could greatly impact how commodity ETFs operate in particular.
The financial industry has been abuzz about regulation overhaul for some time now, with the regulatory issues that many ETF providers view as slowing innovation are threatening to directly impact certain fund providers.
President Barack Obama’s regulations are expected to be plentiful and major. The issue for the ETF providers themselves involves something that many in the industry say costs extra money and creates a need to be one step ahead of the supply and demand equation for investors.
ETFs that deal with futures contracts, such as United States Natural Gas (UNG) and United States Oil (USO), are considered commodities pools have to apply to the Securities and Exchange Commission (SEC) for new shares, since they have limits on the number they can issue to meet demand.
This results in extra costs from the paper chase, as well as the need to stay ahead of slippery supply and demand equations for their investors, says Murray Coleman for Index Universe. Managers hope that regulations might streamline the paper chase so that they don’t have to constantly try to figure out the demand/supply equation.
United States Commodities Funds will be watching every detail, as the sort of portfolios USCF put together using futures contracts and derivatives could be more accurately defined as ETPs. Those who run portfolios based on futures contracts and volatile commodities have been complaining about the hurdles for years.
Industry experts agree that those who are supportive of regulators feel whatever rules or regulations the impose, they should be designed to help investors.
For more stories about commodity ETFs, link to our commodity category.