CFTC Moves In Against Small ETF – Report

US regulators are eyeing the Exchange Traded Funds or ETFs in an effort to quell massive speculation in commodities and oil markets.  The report was cited in The Wall Street Journal.  

Commodity exchange traded funds have been created in 2003 to provide a channel for small investors in taking direct exposure in the commodity markets.  The ETF facilitates pooling of small investment money to pave the way for a one big bet at the market.  The bet is usually made during upward price movements.  

ETF Inflating Prices

Critics of the fund say that this system artificially inflates the prices of critical commodities such as oil, gold, and natural gas due to massive buying.  

According to the National Stock Exchange, the body the tracks and oversee ETF data, the assets in commodity ETFs have already ballooned to $59.3 billion in July.  

According to the Commodities Futures Trading Commission (CFTC), the regulation of the ETF is aimed at protecting the interest of end consumers of commodities.  The CFTC also asserted that the move is not designed to cut off individual investors.  

CFTC Assurances

According to Bart Chilton, a CFTC Commissioner, the Commission is not saying that “You are not tall enough to ride.”  Chilton further stressed that he does not want to limit liquidity but it is more important to make sure the prices of commodities will be fair.  The move is designed to curb price manipulation, either intentional or not, Chilton added.  

Based on The Wall Street Journal report, the move to limit the size and holdings of the Exchange Traded Funds will cause an increase in investment cost for small investors.  The Wall Street Journal also asserted that operational and legal costs will have to be spread out among smaller shares.  

Investors in the Exchange Traded Funds consist of individuals, banks, and hedge funds. All have multi million dollar positions in the commodities market.  

Regulation of ETF Underway

Regulators in the Commodities Futures Trading Commission are currently devising a plan and an effective measure to stop and curb excessive speculations.  One of the measures being considered is putting a limit on the positions of investors in the United States Futures market.  

Lawmakers in the United States have long clamored for regulation of the ETF and the commodities markets.  The clamor for regulation came about after the surge of oil prices in July 2008 which pushed the prices of oil to $147 per barrel.