Commodity exchange traded funds (ETFs) seem to be in the firing line. The Securities and Exchange Commission (SEC) last month turned an eye to exchange traded funds (ETFs) that make use of derivatives and the Commodity Futures Trading Commission (CFTC) is still considering position limits that could hit bigger funds.
Financial regulation is on President Barack Obama’s agenda, which has sent the regulators into high gear. Both the SEC and the CFTC have announced plans to look into the role that derivatives play in the structure and trading of related ETFs. [Why Commodity ETFs Will Prevail.]
The examination by the SEC is being done to ensure that no extra protection is needed when it comes to funds that use derivatives to get their exposure. The review came in part as a result of leveraged bond ETFs notching big losses in 2008 when the credit markets collapsed. [Are Precious Metals ETFs at Risk?]
Any ruling that comes out of the investigation could have a major impact, since leveraged and inverse ETFs are some of the most popular funds around, says John Spence for MarketWatch. As of the end of March, there were 151 leveraged and inverse ETFs in the United States holding nearly $30 billion in assets. [More on March’s Numbers.]
The CFTC, meanwhile, has continued to examine the issue of whether position limits are necessary. Some commodity funds have become so popular that the CFTC wonders whether they’re impacting the markets. While the CFTC issued a proposal for handling the issue, it has yet to make an official ruling and close the door. [The CFTC’s ETF Proposal.]
For more stories about commodity ETFs, visit our commodity ETF 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.