Commodities Futures Trading Commission Puts Pressure On Both The Natural Gas & Oil ETF

cftc“New proposals set forth by the Commodities Futures Trading Commission (CFTC) could curb both the United States Natural Gas ETF (UNG) and the United States Oil ETF (USO). The long-awaited commodities proposals were released Thursday, and the ramifications of these rule changes could single out certain futures-based commodity ETFs while allowing others to operate normally. In the “Proposed Position Limit Rule,” CFTC officials cited both(UNG) and (USO) as examples to illustrate their ideas of position limits. Over the past year, the CFTC has been examining the ways in which futures-based commodity funds like UNG and USO impact the price of the commodities that they track,” Don Dion Reports From The Street.

Dion continues saying that “UNG and USO are designed to offer investors exposure to the spot price of natural gas and oil, respectively. The funds accomplish this strategy by tracking a basket of near-month futures contracts traded on the New York Mercantile Exchange. The new CFTC proposals cover four energy commodities: Henry Hub natural gas, light, sweet crude oil prices, New York Harbor No. 2 heating oil and New York Harbor gasoline blendstock. The regulations would impact the two exchanges on which these contracts are traded: the New York Mercantile Exchange and the IntercontinentalExchange (ICE).”

“CFTC Chairman Gary Gensler asked for tighter rules on energy trading and stricter definitions of traders who are exempt. The proposal sets forth a formula to calculate the number of futures contracts that any single entity can hold. The new regulations seem aimed at ETFs like UNG and USO, whose tremendous size and open interest may have impacted the price of futures contracts in 2009. These single-commodity, front-month ETFs would be curbed by the CFTC’s position limits,” Dion Reports.

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Here are some details on the two commodity ETFs below:

The investment (UNG) seeks to replicate the performance, net of expenses, of natural gas. The trust will invest in futures contracts on natural gas traded on the NYMEX that is the near month contract to expire. It is nondiversified.

Company Symbol % Assets
F/C Natural Gas Futr Nov09 N/A 19.1
F/C Natural Gas Futr Nov09 Ice N/A 16.8
F/C Natural Gas Swap Nov09 N/A 8.64
Fidelity Instl MM Fds Government I N/A 12.08
Goldman Sachs FS Government Sel N/A 11.38
Morgan Stanley Inst Liquidity Gov Inst N/A 2.07
Tr Swap Ng Commodity Index Long N/A 3.13
Usng Comm Swap 2/26/10 Long N/A 7.82

The investment (USO) seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. The fund will invest in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges. It may also invest in other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil, and OTC transactions that are based on the price of oil.

Company Symbol % Assets
F/C Ws Crude Future Sep09 N/A 12.33
F/C Wti Crude Future Sep09 N/A 87.68
Fidelity Instl MM Fds Government I N/A 28.89
Goldman Sachs FS Government Sel N/A 22.73
Morgan Stanley Inst Liquidity Gov Inst N/A 11.11

Chart for United States Natural Gas (UNG)


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