DXO, since it was designed to deliver twice the exposure to its underlying index, had $425 million in assets when it closed. But given its double-long status, it really controlled $850 million in the crude oil futures space. The “regulatory event” phrasing in the note suggests that perhaps the NYMEX used some discretionary power it has had, but doesn’t often employ, Hougan says.
Meanwhile, the trouble for investors still invested in other commodity-focused funds could mean that they’re paying premiums, explains John Jannarone for The Wall Street Journal. In United States Natural Gas (UNG), the fund has had a premium up to 17%. For ETFs still issuing new units, arbitragers can squeeze premiums until they disappear.
Another implication for investors could be a lack of choice if more funds close. DXO was the largest and most liquid exchange-traded product providing leveraged exposure to oil. As Bob Pasani wrote for CNBC after DXO (and several other funds) initially halted new shares, “This is a good example of the Law of Unintended Consequences. We have a problem: We think there are Dark, Mysterious Forces secretly controlling the universe (and the commodities markets), and these must be investigated. But in the process of doing that, perfectly good products get blown out.”
With premiums now a factor in certain commodity ETFs, investors can no longer view them as straight plays on a commodity’s price.
A few other ETFs affected:
- United States Natural Gas (UNG): down 61.1% year-to-date
- United States Oil (USO): up 6.7% year-to-date
For more stories about the CFTC and commodities, visit our commodity ETFs category.