“Until recently, the United States Natural Gas Fund (NYSE:UNG) has managed to effectively evade the constraints set by Washington regulators. However, with the passage of the Dodd-Frank financial reform bill, this fund’s days of avoiding the regulatory hammer may at last be numbered. Looking at a chart comparing the UNG’s performance over the past year period versus that of natural gas prices, the fund’s inability to live up to its investing goals quickly becomes clear. Given its dismal performance and inability to meet its underlying target there is little wonder that this fund has remained locked in the crosshairs of both financial commentators and Washington regulators,” Don Dion Reports From Dion Money Management.

Dion Goes on to say, “On a number of occasions both parties have taken this fund to task, highlighting the risks associated with its massive size and investing strategy. Leading the assault on this fund has been Gary Gensler and his team at the Commodities Futures Trading Committee (CFTC). At the start of 2010, (NYSE:UNG) and its sister fund, the United States Oil Fund (NYSE:USO) faced headwinds from the CFTC which was concerned the funds were getting so large that they threatened to distort the very markets which they sought to track. In order to prevent this from occurring, the regulatory body mulled the idea of imposing stricter limits on the number of futures contracts either fund could hold, thereby constricting the growth of both funds. United States Commodities Funds, the firm behind (NYSE:USO) and (NYSE:UNG), however, foresaw such an event unfolding and had already taken action to prevent against any constraints. In the summer of 2009, UNG’s index was altered to allow bilateral swaps. These financial instruments trade over the counter and, at the time, fell outside of the CFTC’s regulatory oversight.”

“UNG’s managers had effectively discovered and utilized an ace in the hole which allowed the fund freely to expand without the risk of encroaching limits set by the government agency. While the fund has enjoyed its freedom over the past year, there is a good chance that things will change now that Washington lawmakers have passed the mammoth Dodd-Frank financial reform bill. Found within the thousands of pages comprising this document is legislation which will increase the strength of the CFTC’s regulatory hammer with respect to (NYSE:UNG). In an effort to increase transparency in the over-the-counter derivatives industry, the bill gives the CFTC additional authority over the market which includes allowing them to impose position limits. No longer will (NYSE:UNG) be able to rely on these financial instruments in order to slide under the regulatory radar.Regarding commodities futures, there is the possibility that the newly strengthened CFTC will further tighten limits set on the fund,” Dion Reports.

“This controversial fund has made a number of strategic moves which has helped it win a handful of small battles against Washington regulators. However, with the CFTC now boasting the tools necessary to oversee both the futures and swaps positions comprising UNG’s index, the elusive fund may at last be forced to face the music.”

UNG, USO